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Thai Consumers Feel Impact of Global Oil Prices

Thailand's energy users are beginning to feel the full impact of rising global oil prices, and economists warn the effect of energy costs could hurt the country's economy. The Thai government is calling for consumers to cut their use of oil products.

Bangkok remains a city congested with traffic, even as consumers bemoan sharp hikes in fuel prices. For Thai commuters, rising oil prices forced some hard decisions about car use. There are signs some drivers are switching to mass transit and public taxis to save money.

Kanachet Ruttavisit, a foreign exchange trader at Bangkok Bank, says people are also cutting back spending on other products as fuel price rises hit across the country. "I would say it affects all Thai people," said the trader. "Firstly we have to save money for the rising oil price, because every week you see oil price increase one or two times based on the prices of the global market."

Thailand imports 90 percent of its crude oil, at a cost of about $25 billion last year. That amounts to 15 percent of Thailand's gross national product.

Thailand's economy relies heavily on export income, but the growth of exports has slowed as the cost of imported oil has risen - contributing to trade and current account deficits. Those have the spin-off effects of a weaker Thai baht and pressure on the central bank to raise interest rates.

The Thai government hopes voluntary conservation steps will cut oil consumption. But officials have also spoken about the possibility of limiting oil imports to force conservation and reduce the trade deficit.

Thai Energy Minister Viset Choopiban has called for measures that include closing gasoline stations early and switching off the lights on billboards and night golf areas after 9 p.m. "The first stage the government [will] try to convince the people to save energy by the certain campaign," explains Thai Government spokesman, Chalermdej Jombunud. "After three months we will evaluate the result and if it cannot reduce the use of energy then we will go on to the step of control."

The Thai government says it is also committed to eliminating its last major energy subsidies - a marked contrast to just more than two years ago when it maintained subsidies as global prices rose before the Iraq War. At the time, officials said the government was willing to spend $55 million a month to keep the subsidies in place.

But is phasing out the remaining subsidies for diesel fuel and cooking gas, which will be eliminated by the end of the year.

Arporn Chewakrengai, the chief economist for the Government Pension Fund, says the rapid phase-out of diesel oil subsidies hit the economy hard, because the cost of transport affects the cost of nearly all goods.

"For the Thai economy, it may even have a higher impact this year," he said. "It is because this subsidy program takes too long especially on the diesel prices. I think (since) early this year the diesel price is over 40 percent increase in a short period from March to the end of June."

Some foreign investors are re-examining plans for Thailand, as they see costs rising on materials and labor as oil price rises filter through the economy.

Kunihiro Okamoto is an investor from Japan currently assessing whether he will go ahead with a project in Thailand. "Maybe if this high price continues, some small companies must go home, go back to Japan," he said, "because every company comes to Thailand because of the price of material and cheaper labor cost, and [now] everything is coming up higher, so I think for the small company it is very difficult to continue - like us."

The increased energy costs, higher interest rates and slide in consumption translates into slower economic growth for Thailand.

Andrew Stotz, a research analyst with Macquarie Securities (Thailand) says the outlook is poor. "My feeling is that we have probably got a very weak second quarter and probably a weak third quarter," he said.

The five percent forecast growth for 2005 is now being marked down to around three percent by economists and analysts.

For now, Thais are bracing for more tough times ahead as their economy adjusts to higher global oil prices.