A closely-fought war of words and theories resulted in a draw yesterday, as local economists remained divided on the future of the Thai economy. Some 350 participants narrowly favoured the government's market-oriented policies in an informal vote by a show of hands at the annual Thammasat Economics Association seminar.

Opening the conference was Finance Minister Tarrin Nimmanahaeminda, who maintained that economic recovery was well on track with growth projected at 3-4% this year. The government had succeeded in jumpstarting two new economic engines-consumption and exports-to support expansionary state spending, he said. "The government has set up measures to deal with the problems systematically and comprehensively," Mr Tarrin said, pointing to the investment stimulus programmes, measures to spur debt restructuring, and the August 1998 financial reform programme.

However Virabongsa Ramangkura, a former finance minister and deputy premier, said forcefully that no recovery was in sight, with recent gains being a "technical rebound". "Current government policies are based on hope, rather than on vision," he said. The higher baht cost of imports has risen faster than export revenue, thus shrinking the current account surplus. Consumption gains were unsustainable, Dr Virabongsa said, with increased lay-offs likely to hurt growth. He said the economy was likely to shrink next year, citing falling wholesale prices, sluggish investment, and misguided foreign exchange policies.

The government and the International Monetary Fund expect economic growth of about 4% next year. Dr Virabongsa said currency policies were "the greatest limitation" on the economy, and said the baht should weaken to bolster export revenues. Corporate debt restructuring had moved slowly and with questionable sustainability, he said, while fiscal stimulus policies would become increasingly limited as public debt increases.

Mr Tarrin agreed that policy makers have to exercise caution about Thailand's rising public debt, estimated to peak at 60% of gross domestic product over the next several years, but he insisted the government had succeeded in stabilising the economy and laying the foundation for sustainable growth. Mr Tarrin later blasted Dr Virabongsa, currently chairman of the Senate banking committee, for his pessimism. "It is difficult to understand how a person who helped cause the country to be in a hopeless situation can talk about vision," he said. Artificially maintaining the baht at a weak level was a short-sighted policy which would only lead to competitive devaluations in the region and hurt firms with foreign-exchange liabilities, he said.

Joining the fray was M.R. Pridiyathorn Devakula, president of the Export-Import Bank. He agreed with Dr Virabongsa that exchange rate policies are misguided, saying Thailand had lost 130 billion baht in export revenues this year because of the appreciating baht. Current policies benefit large exporters while small firms suffer, M.R. Pridiyathorn said. "Out of 14,000 exporters, some 11,000 are dying."Goanpot Asavinvichit, deputy commerce minister, expressed confidence that exports would continue to grow steadily next year.

In the first 10 months of the year, US dollar revenues have grown 5-6% from the same period last year, although in baht terms, revenues have fallen by 10%, reflecting a stronger baht. Mr Goanpot said stronger economic prospects in Asean and Japan should support Thai exporters, but local firms have to closely monitor developments in the global market and improve their own efficiency to survive the growing competition.

M.R. Chatumongol Sonakul, governor of the Bank of Thailand, said exchange policies would continue to be guided by market forces. "While basic policies for recovery had been set, final results depend on execution," he said. M.R. Chatumongol said the baht had stabilised considerably, having last come under attack in October, when regulators spent $70 million to prevent the baht from falling past 42 to the US dollar. "If you let speculators run unchecked, then you can't stop the problem," M.R. Chatumongol said, adding intervention would be made only under appropriate market conditions.

Clarification of trading and capital restrictions, he said, had helped reduce the daily volume of transactions without underlying trade or investment to 382 million baht from 11.593 billion. Other initiatives taken by the central bank include a sweeping restructuring, with six management levels reduced to two. Two state-held banks-Nakornthon and Radanasin-have been sold to foreign institutions.
"There have been no policies reversed since I became governor," M.R. Chatumongol said.
"Some policies might be slow to appear, but it is better than acting in haste, and only having to introduce changes later."Regulators were taking steps to boost efficiency in the financial sector by supporting good governance initiatives, liberalising branch policies and improving risk management, he said.
"We estimate that 1,000-1,500 bank branches cannot sustain themselves without help from their head office," M.R. Chatumongol said. "Banks will be free to close their branches, but based on standards to limit the impact on local areas."M.R. Chatumongol noted that new loan approvals-76.8% in September-had bounced back sharply from a low of 61.4% in May and are now nearing 80%.