Thai budget cuts not enough to save economy: Analysts
Thai budget cuts not enough to save economy: Analysts
BANGKOK (AFP): Analysts warned yesterday Thailand's tough budget cuts may not be enough to bring recovery to the country's economy ahead of the expected approval of a 16 billion dollar bailout loan.
The 59 billion baht (US$1.86 billion) cuts for the fiscal year to September 1998 were in line with austerity measures required by the International Monetary Fund ahead of its brokered rescue package for Thailand.
The IMF board in Washington was expected to meet later Wednesday to approve the loan, under which the fund itself will offer four billion dollars. Asia-Pacific nations will contribute the rest of the aid, led by Japan, together with other multilateral bodies.
Thailand has also opened negotiations with the Bank of International Settlements for a US$3.3 billion credit line.
Even those who backed Tuesday's cuts warned it was still uncertain whether Prime Minister Chavalit Yongchaiyudh could balance his budget, which is regarded as a key step on the road to Thailand's economic recovery.
Others warned further spending reductions may be needed.
Economists from Thailand's respected Chulalongkorn University called for deeper cuts, saying another 40 billion baht ($1.29 billion) should be saved.
"The right way out is to cut more from the budget and reduce personal and corporate taxes," economist Teerana Pongmakapat told a seminar Tuesday, The Nation daily reported.
"Otherwise Thailand may not yet bottom out," he added.
But most market analysts welcomed the measures, saying they were likely adequate and crucial if the country was to meet the IMF's conditions.
The cuts followed a rise in value-added tax (VAT) from seven to 10 percent, effective last Saturday.
"It means the budget will not grow at all this year, but that it should just balance provided the revenues from VAT and corporate tax are not woefully lower than projected," an economist at a western brokerage told AFP.
Other experts agreed, but warned that much depended on tax and VAT revenues, which could be hard-hit by the slowing economy which will affect individual incomes.
"The VAT increase is supposed to bring in around 65 billion baht for 1998, which should be enough to see through the budget cuts," a Thai economist who requested anonymity said.
"But if it comes in only at 44 billion as some experts believe it will, the budget may have to be cut again which would be dangerous politically for the government which could risk social unrest in the wake of the hardship."
"The question of whether these cuts will be enough to help reignite the economy depends on tax revenues," a foreign economist said.
"It will pan out in the next few months, but right now the whole issue of tax receipts is very murky," he added.
Bangkok's stock market was still riven with doubts over the implementation of the IMF loan, dealers said.