central bank Thai Central Bank Says Crisis in 2009 Less Severe Than 1997

- Thailand’s central bank said the nation’s economy will be able to better withstand the global credit crisis than in 1997 because of the resilience of local companies and banks.
“Since the last crisis, we have put in a lot of effort and energy to strengthen our system,” Bank of Thailand Governor Tarisa Watanagase, 59, said in an interview yesterday in Bangkok. “Our capability to withstand the storm is very much different than in 1997. Banks don’t have solvency or liquidity problems.”

Thailand and other export-dependent countries are cutting interest rates and rolling out stimulus packages to buoy consumption as their main markets in the U.S., Japan and Europe contract. The Bank of Thailand and the government plan to ease curbs on foreign ownership of local banks and consider new banking licenses to lure overseas investment and spur lending.
Prime Minister Abhisit Vejjajiva is also boosting spending and waiving taxes to spur expansion.
Tarisa said she still expects the economy to expand in 2009, even after a contraction in the fourth quarter of last year and probably another in the current period.
Gross domestic product may expand no more than 2 percent in 2009, the slowest pace since the 1998 Asian financial crisis, the central bank said.
The economy probably contracted 3.5 percent in the fourth quarter and may shrink in the three months to March 31, the Finance Ministry said Jan. 29.
“This is the crisis that happened elsewhere and we don’t have a lot of control over it,” Tarisa said. “The effect will come through the trade channel. Now, we have to pin our hopes on domestic investment and consumption.”

Biggest Threat
The slowdown in global economic growth and the credit crunch have overtaken inflation as the biggest threat to Southeast Asia’s second-largest economy, said Tarisa, who has led the bank since 2006 as the bank’s first female governor.
Abhisit, elected by parliament in December, plans to spend an extra 116.7 billion baht ($3.3 billion) on cash handouts to the elderly and free school supplies among other measures. The funds are in addition to 10 billion baht in tax breaks aimed at boosting property sales, supporting tourism and helping small businesses.
Loosening restrictions on foreign banks is aimed at “bringing benefits to the financial sector, to the consumers,” Tarisa said yesterday.
“The government’s measures can alleviate the problems, but they can’t solve them,” said Prasarn Trairatvorakul, president of Kasikornbank Pcl, the nation’s third-largest lender. “There are limitations.”

Worst Performance
Thailand’s benchmark equity SET Index posted its worst annual performance in 11 years in 2008, falling by almost 48 percent. This year, it has dropped another 2.1 percent.
Asian governments have unveiled more than $685 billion worth of stimulus measures to buffer their economies from the worst global recession since the 1930s. Singapore last month announced a $13.7 billion spending package, while Malaysia is planning a second round of measures after a $1.9 billion program outlined in November.
The Bank of Thailand has lowered its benchmark interest rate to 2 percent in cuts totaling 1.75 percentage points since December and “has the room” to continue cutting borrowing costs when policy makers next meet on Feb. 25, Tarisa said.

Slashing Costs
Thailand’s central bank is unlikely to lower borrowing costs to zero because the country is “not at the epicenter of the problem like the U.S. and the U.K.,” Tarisa said.
Consumer prices in Thailand dropped 0.4 percent from a year earlier in January, the first contraction since October 1999, and may decline in some months this year, Tarisa said.
The baht currency has extended last year’s 15 percent loss against the dollar on speculation a deepening economic slump will prompt foreigners to further trim their holdings. The baht, which has fallen 1.4 percent this year, was 0.1 percent lower at 35.16 per dollar as of 7:53 a.m. in Bangkok.

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