Thai minister backs stable baht

Thai minister backs stable baht

BANGKOK (AFP): Thai Finance Minister Amnuay Virawan yesterday ruled out changes in the country's stable baht-dollar exchange rate policy, saying economic recovery would depend on fiscal measures.

The new finance minister, sworn in along with the government of Prime Minister Chavalit Yongchaiyudh on Sunday, said the details of his economic policy would be announced on Dec. 11.

The government will continue to support the baht's fundamentals, Amnuay said. "The fundamentals of the Thai economy remain strong and the baht continues to perform as a stable currency should," he said.

Thailand's baht currency has hovered around 25 to the dollar for more than a decade. The central bank said yesterday the so- called midrate was 25.56 baht to the dollar.

Amnuay has been seeking to calm fears aroused by central bank projections of zero export growth in 1996 and revised six-to- seven percent gross domestic product growth, previously forecast at 7.8-to-8.0 percent.

"The right and proper way to restore confidence in the baht is to continue stabilizing the economy, including improving the current account deficit and trade balance," Amnuay said.

Central bank figures last week said the current account deficit rose 27.9 percent year-on-year to 300.9 billion baht in the first nine months of 1996.

The trade deficit was up 27.4 percent to 334.2 billion baht for the period.

"Tax incentives both for investment and savings will help boost savings and help the current account deficit," while other steps are planned to ensure a recovery in export growth next year, Amnuay said.

The current account deficit was equivalent to 8.1 percent of the gross domestic product in 1995, but was covered by capital inflows and a government surplus.

"Any capital-intensive government projects which are seen to be non-productive will be seriously reconsidered or deferred" in order to reduce capital spending, Amnuay said.

Finance Ministry permanent secretary Chatumongkol Sonakul warned last week that the government faced a shortfall in projected revenue due to the economic slowdown and a possible deficit if spending was not cut.

Analysts have interpreted the new finance minister's calls for a reduction in domestic interest rates to boost the economy and a shift in emphasis towards fiscal policy as signaling a looser exchange rate policy.

Any significant reduction in domestic interest rates make the baht less attractive, possibly threatening the country's ability to service its current account deficit and undermining confidence in the baht, they said.

Amnuay's announcement appeared to be designed to head off speculation that authorities would loosen or adjust the basket of currencies used to set the value of the Thai baht, which is heavily weighted towards the dollar.