#11/09/1996 05: 05

By IPS Correspondents Reprint | | Print |

Ron Corben

BANGKOK, Sep 11 1996 (IPS) - Thailand’s once spinning economy, fuelled largely by exports, has shown signs of overheating and is heading for a slowdown for the first time in almost a decade, analysts say.

They say declining exports, high interest rates and a slide in capital inflows will slow economic growth and may lead to massive layoffs. This is in stark contrast to the strong growth momentum which Thailand exhibited over the past several years, and which earned it the tag as the next economic tiger in Asia.

And if that weren’t enough, the upcoming no-confidence parliamentary debates later this month will further undermine foreign investor confidence, analysts add.

Prime Minister Banharn Silpa-archa, who heads a seven-party coalition in power since July last year, appears ready to fight to keep his government in office despite dwindling public support.

But his political battles are being fought against the backdrop of a slowing economy, adding to a complicated picture in the lead- up to the three day no-confidence debate from September 18. Accusations of economic mismanagement have also dogged Banharn’s government.

“Banharn has stated categorically that he will not resign or dissolve the house,” a political analyst said. “But the people are very much waiting and watching,” she added.

The analyst said that if Banharn has made enough deals to get through the vote, “I think he will hang in there.”

Thailand’s economic powerhouse – its exports – grew by a mere 3.8 per cent compared with 26.2 per cent in the same period last year, statistics show.

Exports of labour-intensive goods such as footwear, textiles and garments, have been losing international market share with rising wages, and growing competition from countries such as China and Indonesia.

Slower growth in Europe and an appreciating baht, with its ties to the U.S. dollar, have also contributed to the downturn in export performance.

Although inflation and import demand has eased, the dismal export performance raises the prospect of almost half a million jobs being cut, the Thai Farmers Bank Research Centre said.

Annual export growth for 1996 may slow to only 4.9 per cent, well below the earlier projection 17 per cent.

Overall economic growth may reach its lowest level in almost a decade of just 7.4 per cent in 1996, lower than the 8.3 per cent predicted earlier. It would also be the first time the growth figure will fall below 8 percent since 1986.

The Bank of Thailand’s deputy director for research, Suchada Kirakul, said the economic slowdown, which began earlier in the year, had not bottomed out.

Bank data showed that private investment in residential, commercial and industrial construction, based on the private investment index, was also still declining.

“The economy is slowing. And what it comes down to is a definite loss of confidence in the currency, and offshore funding costs rising,” said Capital Nomura Securities Ltd senior analyst, James Marshall.

Marshall warned that if domestic interest rates remained high the economy could “face a hard landing”.

Exports to Thailand’s crucial markets of the United States and Japan were also sharply lower, partly reflecting the currency changes as the U.S. dollar linked-baht rose against the yen.

Over the seven months exports to the United States grew by just 1.0 per cent compared with 4.8 per cent last year. Exports to Japan registered only a 2.8 per cent increase from 21.5 per cent earlier.

The Bank of Thailand has already lowered its forecasts for annual export growth to just 10.2 per cent from an earlier 17.4 per cent, while economic growth is forecast at 5.0 per cent.

“The export slowdown in 1996 is an urgent and priority issue that the authorities should closely monitor the rest of this year as the export sector is a key growth engine of the Thai economy and domestic investment,” a Thai Farmers Bank report said.

But analyst Dan Fineman of Jardine Fleming Thanakom Securities Ltd says there may be some recovery later this year, “with some relief in the first quarter of next year”.

But Thailand’s financial ego was hurt this week by the credit rating downgrading by Moody’s Investor Services of its short term sovereign debt from Prime 1 to Prime 2.

The downgrading, which translates into higher offshore borrowing costs, came despite central bank measures to sharply curtail the level of short-term debt.

At the end of 1995, Thailand’s total private sector debt outstanding stood at 51.8 billion dollars, up from 39.3 billion a year earlier, and largely centred on local companies borrowing through offshore banking facilities.

Moody’s said this left the country vulnerable to any international financial shocks, while the Bank of Thailand countered by saying the agency failed to take into account the strong official reserves of 39 billion dollars.

But as foreign investor confidence has slipped, so has capital inflow, which slumped to 12 billion baht (480 million dollars) in July from 54.5 billion a month earlier.

As a result, local monetary conditions remain tight with little room for an easing in the banks’ lending rates in a bid to revive the economy.

The government has announced a round of measures to lift exports, including taxation reductions, an easing in customs procedures, and improved operations at the country’s major ports.