Thailand launch stimulus package

Thailand launch stimulus package

BANGKOK (AFP): Thailand launched three multi-million dollar investment promotion funds and a raft of import tax cuts on Tuesday as part of the latest stimulus package aimed at kick- starting its comatose economy.

The package, which also contains measures to heal the property sector, was welcomed by analysts who said it appeared to signal a change in tack from boosting demand to a longer-term focus on the supply side.

"I think the idea here is that the government has had two stimulus packages which are demand-oriented and will support growth and momentum in 1999," said SocGen Crosby strategist Syrian Pietersz.

"This is a more supply side, investment-oriented package which will keep investment going beyond 2000. The lead time here seems to be anywhere between six and 12 months," he said.

Analysts said that although the investment funds may not be enough on their own, they appeared in part to be a way of sidestepping the country's troubled banks which are struggling under the weight of massive non-performing loans and have been slow to help ease tight liquidity.

The government announced plans to set up an equity fund initially worth US$500 million but later expanded to $1 billion, with the World Bank's International Finance Corporation as a key partner.

The fund will seek ways to help larger enterprises which cannot get loans from the banks.

A smaller one billion baht ($27 million) 10-year closed-end fund to buy shares in small- to medium-sized enterprises will also be set up, a statement said.

The stakes will be purchased through the Stock Exchange of Thailand or direct from the companies, with the fund exiting once the companies are considered well enough established.

The third fund will be known as the Thailand Recovery Fund, targeted at competitive medium-sized companies and with initial capital of $100 million, according to the document.

It will have the Asian Development Bank as partner and be managed by professional fund managers.

Import duties for capital goods and raw materials, covering some 326 items including machinery, electronics and electrical goods, will be cut to three percent.

The tax for raw materials imported for cosmetics and medicines will be reduced to one percent from 10 to 30 percent.

Import duties on some products in the chemicals, plastics and steel categories will also be slashed.

The document said Thailand plans to reduce import taxes on about 7,000 items from 85 percent to zero to five percent from January 1, 2000, in line with ASEAN Free Trade Agreement procedures.

The tariff cuts will include raw materials and intermediate and finished products.

According to the statement, the Government Housing Bank will prepare a 30-year mortgage package, with three-year and five-year fixed interest rates, for home buyers.

It said the housing bank will issue bonds worth 46 billion baht over the next nine months, with the first issue due this month. Some 25 billion baht will be lent to commercial banks so they can provide mortgages, it said.

The National Housing Authority plans to buy unfinished residential projects from developers, spending up to 15 billion baht, according to the document, and property transfer fees will be cut to 0.01 percent of the valuation price from the current two percent.

Analysts said the property measures were aimed at giving the sector a shot in the arm and amounted to about 65 billion baht of government spending.

"It will probably reduce the outstanding stock of housing by about 15 percent, so it would have an impact on the oversupply, but not as large as you might want," SocGen Crosby's Pietersz said.