Thailand star performer of ASEAN

Thailand star performer of ASEAN

Sarah Stewart, Agence-France Presse, Bangkok

Thailand has become Southeast Asia's economic star performer, with growth of up to 6.25 percent forecast this year in an impressive turnaround since the dark days of 1997 when the devaluation of the baht sparked Asia's financial crisis.

Backed by a bull run on the stock market which is being powered by an avalanche of foreign funds, a resurgent real estate sector, a strong baht and rising exports, Thailand's growth rate now ranks second only to China.

The big-spending fiscal policies of Prime Minister Thaksin Shinawatra's populist administration, much criticised after he swept to power in 2001, are credited with kicking off the recovery.

"Their policy has been fairly pro-active, and the currency depreciated very substantially during the crisis so that gave them a good starting point," said ABN Amro Asia's Hong Kong-based economist Eddie Wong.

"At the same time there was less damage to the economy as compared to the Philippines and Indonesia," he said. "In economies like Hong Kong and Singapore they are still having some difficulties adjusting."

Although there are fears of a bubble emerging in the overheated real estate sector, and concerns over destabilising short-term punting on the stock market, economists believe Thailand's recovery is generally built on firm foundations.

"If you look at the fundamentals, they have an improving current account surplus, investment is starting to shift from public to private, consumption is still fairly robust and employment growth is broad-based," said Wong.

Thailand's bourse, which until recently struggled with poor market capitalisation and lack of buyer interest, has been emblematic of the change of fortune with a stunning 79.4 percent increase over the first 10 months of 2003.

The rally has been fuelled by foreign funds ploughed in by investors who have been priced out of more developed stock markets. Rock-bottom interest rates have also lured retail buyers.

"The financial sector, both the money market and the capital market, have prospects to be on an upward trend, particularly the stock market," said Sompop Manarangsan, an economics lecturer at Bangkok's Chulalongkorn University.

Sompop said the bourse will continue to benefit from strong supply with a raft of share offerings and privatisations of lumbering state enterprises, another Thaksin initiative aimed at boosting market capitalisation.

"Besides China, I think the prospects of the Thai economy are relatively better than all the countries in this region when we see several factors from both the real sector and the financial sector," he said.

Thaksin's economic management and the political stability that has come with his overwhelming control over parliament has also boosted investor confidence despite initial doubts over his government's commitment to financial reforms.

However, Wong said Thailand's neighbours were snapping at its heels and looked set to catch up fast in terms of economic expansion.

"The rest of the region is also picking up, Thailand is just something like 12 or 18 months earlier than some of its neighbours," he said.

Sompop also sounded a note of caution about a looming bubble centred on the real estate market, one of the weak points in the economy that sparked Thailand's economic descent in 1997.

"This may erode Thai fundamental factors in the longer term, if we do not take more precautions over this kind of speculative bubble expansion," he said, adding that some sectors of domestic consumption were also overheating.

"We could not avoid this bubble emerging in the upward-moving economy but we can handle it to ensure the boom turns into more sustainable growth," he said.

But Sompop said that currently, agencies responsible for macro-economic management were doing little to cool things down, continuing to permit tools like net settlement on stock trades which help speculative investors operate.

Thailand's central bank last week raised its growth forecast for 2003 to between 5.75 percent and 6.25 percent from an earlier projection of between 4.5 percent and 5.5 percent, in line with the government's economic advisory body which last month upped its full-year forecast between 5.8 and 6.2 percent from between 4.5 percent and 5.5 percent.

International organisations are also enthusiastic about the Thai economy's prospects. The International Monetary Fund said in September that it expects Thailand's real GDP growth to hit 5 percent this year.

The World Bank last month raised its 2003 economic growth forecast to 5.8 percent from an earlier estimate of 4.5 percent, citing a "strong and impressive" economic performance over the past six months.