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Thai Prime Minister Looks to Infrastructure Spending to Drive Economic Growth

  • Ron Corben

The Thai government hopes to drive economic growth over the next four years with spending on infrastructure projects. But analysts are worried about corruption, and the government's ability to finance the projects.

Thailand's economy has been growing at around six percent over the past year, and Prime Minister Thaksin Shinawatra wants to keep it that way as he embarks on an unprecedented second four-year term.

Mr. Thaksin, buoyed by a landslide election victory on February 6, is banking on massive infrastructure spending to propel the economy. During his first term, he concentrated on increasing domestic consumption, by providing subsidies to the rural sector.

The prime minister, who has discussed his vision with cabinet members and advisers since winning re-election, plans to initiate major transportation and energy projects worth at least $40 billion.

Aside from fueling growth, Mr. Thaksin hopes that new transportation infrastructure, including a $10 billion railway upgrade, will speed the movement of goods within the country. It could also improve Bangkok's notoriously bad traffic, which in turn could save billions of dollars a year in gasoline imports.

Supuvud Saicheua, a senior analyst with Phatra Securities, says the government hopes private domestic and foreign investors will be a key source of financing for the projects.

"They plan to make sure that the financing will be largely private so that they can keep their promise that public debt would be 50 percent of gross domestic product or less," he said.

Analysts believe financing may also come from the privatization of state enterprises and from domestic bond issues, with an option to borrow from international capital markets.

Thailand's financial standing has rebounded from the Asian economic crisis of the late 1990s, when it had to borrow $17 billion from the International Monetary Fund.

Mr. Thaksin has overseen repayment of that loan, and the country's foreign exchange reserves currently stand at close to $49 billion.

Jun Trinidas, an economist with Citigroup who monitors Thailand's economy, says Mr. Thaksin's hand has been strengthened by the crushing election victory of his Thai Rak Thai party. The party won 376 of the 500 parliamentary seats.

"We're taking the view that after the elections, it [the result] certainly will provide, politically, a strong backing for the projects that he has envisioned, starting with the transport and energy projects," he said.

Mr. Trinidas also says Mr. Thaksin's plans could provide a cushion for an expected economic slow down.

Some local analysts are also concerned about the estimated expenditure of $40 billion - or up to two trillion Thai baht - on the infrastructure projects. They fear the huge outlay will overheat the economy and lead to inflation and economic instability.

Bob Broadfoot, managing director of the Political and Economic Risk Consultancy in Hong Kong, sees another risk: the potential for corruption despite official assurances that the infrastructure program will be marked by transparency.

"Thailand's record of implementing infrastructure projects is not particularly good - since many of them, like the airport, the toll roads, in the past have been involved with corruption. Is this going to be an excuse for feathering the nest of a lot of bureaucrats?" he asks.

The Germany-based anti-corruption watchdog, Transparency International, last year rated Thailand 64th out of 146 countries listed in its annual transparency table.

Mr. Thaksin and his policy advisors appear to be adopting a proactive strategy on the economy, instead of waiting for a downturn before making a move. While many analysts favor the effort, they the real test, they say, will be how quickly and transparently the government is able to put its program into effect.