Sunday, September 21, 2008

Thai Senate passes bigger budget to spur growth

09.19.08, 7:39 AM ET

BANGKOK, Sept 19 (Reuters) - Thailand's Senate approved a 2008/2009 fiscal budget aimed at boosting growth on Friday, a day after Prime Minister Somchai Wongsawat took office amid political turmoil triggered by months of anti-government protests.

The Senate's endorsement of the budget bill, proposed by Somchai's predecessor, Samak Sundaravej, and passed earlier by the House of Representatives, means the government can raise spending 10.5 percent to support growth in the year from Oct. 1.

Samak stepped down last week after a court found him guilty of a conflict of interest. He had faced months of street protests that damaged confidence in the economy and culminated in the occupation of his office compound by protesters three weeks ago.

Somchai has inherited a state budget of 1.84 trillion baht ($53.9 billion), geared to helping the economy expand around 5.0 percent in calendar 2008 and 5.5 percent in 2009.

Analysts in a Reuters poll in July expected the economy to grow 5.0 percent this year and 4.9 percent in 2009, after 4.8 percent in 2007.

The 2008/2009 budget projects a deficit of 249.5 billion baht, or 2.4 percent of 2009 gross domestic product. That is far bigger than a 165 billion baht deficit projected for the current fiscal year, or 1.75 percent of 2008 GDP.

'The budget deficit for next year is a 10-year high. But with slowing private investment, more state spending is justified to fill the gap of achieving economic targets,' said Professor Montree Socatiyanurak of Bangkok's National Institute of Development Administration (NIDA).

Senator Kittipot Viyaroj agreed, saying in parliament on Tuesday that more state spending was essential to offset problems caused by rising inflation and weaker global economic conditions.


In budget bill debates in June, opposition leader Abhisit Vejjajiva said government economic projections were based on the unrealistic assumption that inflation would average 5.5-6.0 percent in 2008 and 3.5 percent in 2009.

Partly due to high oil prices in the first half, analysts have forecast inflation this year at 6.5-7.0 percent and 3.8 percent in 2009, up from 2.3 percent in 2007.

Annual inflation in August eased sharply to 6.4 percent from a 10-year high of 9.2 percent in July, thanks to state subsidies to keep petrol prices, power and water charges low, and to free public transport provided by the government for the poor.

Inflation averaged 6.7 percent during January-August.

Former Finance Minister Surapong Suebwonglee said in June when he introduced the budget bill that oil prices might fall to around $70 per barrel next year from record levels of $130-140 in mid-2008. The opposition dismissed his projection as far-fetched but oil traded below $100 a barrel this week.

Surapong, who resigned this week, had said government stimulus spending was needed to spur consumption.

About 6.8 percent of the 2008/2009 budget is earmarked for housing subsidies for the poor, debt moratoriums for 340,000 farmers, and other measures to boost consumer confidence.

Samak said in June that public investment in infrastructure projects in 2009 would not be less than in the current year.

The bill provides for an 18.2 percent rise in the defence ministry budget, although that is smaller than the 24.3 percent rise approved a year earlier when Thailand was being run by an army-appointed cabinet after a 2006 coup against Thaksin Shinawatra.

($1 = 34.14 baht)

(Editing by Alan Raybould)


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