Cablegate: Economic Ministers Push Investment, Megaprojects to Drive


DE RUEHBK #0670/01 0630958
R 030958Z MAR 08





E.O. 12958:N/A



1. Summary: Thailand's new economic ministers laid out their
priorities for economic growth at a recent forum, presenting their
plans to boost investment, consumption and exports. The Ministers
were attuned to foreign interests and alleviated concerns over
capital controls and investment restrictions that had unnerved the
business community during the previous government. The Finance and
Transport Ministers outlined a broad strategy of investment in
public infrastructure in transportation and logistics that could
total as much as 1.5 trillion baht (USD 47 billion). Confidence in
the abilities of the new economic team is still low, but Finance
Minister Surapong impressed as a quick study. End Summary.

2. On February 25, Prime Minister Samak opened a half-day forum
hosted by the Bangkok Post newspaper featuring speeches from Samak's
top economic ministers, including Minister of Commerce Mingkwan
Sangsuwan, Minister of Finance Surapong Suebwonglee, Minister of
Industry Suwit Khunkitti, and Minister of Transport Santi Prompat.
PM Samak described his cabinet as the "ugly duckling" cabinet
(referring more to their qualifications than looks), but said that
they would transform into beautiful swans. "My cabinet is not good
looking, but our policies are not bad looking," he insisted. Samak
made a number of references to the determination of his cabinet's
members from disparate parties to work together, a pointed reference
to the previous government's inability to coordinate among

Investment, megaprojects to lead economic growth
--------------------------------------------- ---

3. Finance Minister Dr. Surapong Suebwonglee gave the keynote
speech over a gala dinner attended by the business and diplomatic
community. Although he provided no new major policy pronouncements,
he pressed his theme of improving investor confidence and keeping up
with regional competitors. Surapong explained that of the four
principal drivers of Thailand's economic growth, exports, public
investment, private investment and consumption, only exports had
performed well in recent years. He emphasized the need for expanded
public investment, insisting that the government could afford to
raise its debt level to boost spending. Surapong said that public
debt-to-GDP ratio is at a reasonably health 38 percent (compared to
over 80 percent ten years ago). He suggested that the RTG could
lift its debt/GDP ratio up to 50 percent, implying an additional 1.5
trillion baht (USD 47 billion) would be available for infrastructure
investment and other programs. The RTG would focus its spending on
reviving the Thaskin-era "megaprojects", large public infrastructure
projects in transportation and logistics.

4. Surapong stressed the need to reenergize private investment by
attending to foreign investment concerns. He promised a quick and
definitive decision on the 30 percent reserve requirement on capital
instituted in late 2006 (and since lifted on March 3, see reftel).
He also promised to keep foreign investment interests paramount
relative to the Foreign Business Act. The previous government had
proposed amendments to the Act that would have further restricted
foreign investment; Surapong said any future changes would focus on
providing additional clarity to the rules rather than applying new
restrictions retroactively. Surapong noted that while the threat of
recession was not on the horizon, Thai industries were operating at
near full capacity and more investment was crucial to continue

5. Minister of Industry Suwit Khunkitti promoted stronger private
investment as well, but noted that Thailand had not lived up to its
potential as a production hub. Thailand was surrounded by important
markets in ASEAN, India and China, he said, but had underutilized
its position and needed better transportation routes to regional
capitals to move its products. Suwit promised to promote more
investment in the heavily industrialized Eastern Seaboard, and
discussed development of a future Southern Seaboard that could focus
on petrochemical and chemical industries.

6. To boost consumption Surapong announced that he would present a
new economic stimulus package to the Cabinet for approval on March
4. The package would focus on stimulating consumption at the
grassroots level. Surapong denied the stimulus would be a populist
measure aimed at gaining more support for the current government,
but rather explained that getting money into the hands of the poor
was the most efficient means to quickly boost consumption.

7. Although exports have been the key driver of Thailand's economy
for the last couple years, Surapong downplayed its importance,
telling the mostly business crowd that the domestic market should be
their most important. He said that he was not overly concerned
about the strength of the baht (which has appreciated in value by 20
percent in the last two years). Surapong said he preferred that the

baht not skyrocket in value, but would not be alarmed if the
currency rose in line with other currencies in the region.

8. Surapong admitted that Thailand's challenge was great,
possessing neither the lowest labor costs in the region, nor the
most advanced science and technology base to spur economic growth.
He said Thailand had little room for more political instability,
government inaction, or ill-advised legislation that would
negatively affect investment. Surapong, Suwit, and Commerce
Minister Mingkwan all pointed out the economic rise of Vietnam and
the competition for export markets that it posed.

Megaprojects to drive public investment

9. Minister of Transport Santi Prompat expounded on the proposed
megaprojects -- investments in water, logistics and transportation
infrastructure that the RTG would use to not only boost growth but
also invest in the country's economic future. Santi focused
primarily on logistics, promising to decrease logistics costs and
increase transport capacity while reducing pollution. Santi
lamented Thailand's over reliance on road transport, raising costs
in a time of spiraling oil prices. Santi compared Thailand's high
logistics costs of 16 percent of GDP to Japan's at half the cost,
and promised to reduce costs to 13 percent by building capacity in
maritime, rail and air transport. Santi's plans for rail include
800 more kilometers in double track rail and new high-speed
passenger rail links that would cut transport time to Chiang Mai in

10. Santi also laid out plans for nine more subway and SkyTrain
routes within Bangkok, plus a new link to Suvarnabhumi airport. The
new lines would include 300 kilometers of line to connect Bangkok
with the surrounding provinces. Santi emphasized the need to
develop transportation into the suburbs to allow greater migration
of people into outlying areas of Bangkok where land prices were
lower. Santi also linked Bangkok's notoriously abysmal traffic to
the city's pollution problems and proposed converting Bangkok's
buses to cheaper and cleaner natural gas.

11. Comment: PM Samak's "ugly duckling" Cabinet has been widely
derided as a group of political hacks (or nominees for other pols),
but his economic ministers did a reasonable job of laying out their
priorities for growth. Finance Minister Surapong, a doctor by
training, managed to impress most of all. Despite his almost
complete lack of financial experience, Surapong gave a strong
presentation without notes and showed he had a clear idea of where
he wanted the economy to go. An economist with Siam Commercial Bank
told econoff, "Who cares if he's a medical doctor? We've had plenty
of economic PhDs and got nowhere. People want someone who can get
things done, and this guy is in that mold."

© Scoop Media

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