While slashing taxes for the middle- and upper-class might have resulted in greater overall consumption, such measures could have been politically difficult. Finance Minister Tarrin Nimmanhaeminda expressed confidence the tax cuts and new spending programmes would lead to an economic recovery within the next 4-6 months. "With these measures, we hope to boost consumer purchasing power, reduce prices and stimulate overall consumption and demand to spur economic growth," Mr Tarrin said. About half of the overall 130-billion-baht package would go directly to the private sector over the next six months, he said.

The 53-billion-baht spending package, funded by loans from the Japanese Export-Import Bank, the Overseas Economic Cooperation Fund of Japan and the World Bank, aims to create 486,000 new jobs over the next two years. Some 13 billion baht will go directly to job programmes, while the remaining 40 billion will be used to purchase goods and services by various government ministries.

The Interior Ministry is the biggest recipient of state funds, receiving almost 18 billion baht to fund projects at the local level. Interior Minister Sanan Kachornprasart said 7.4 billion baht could be disbursed immediately for various projects already set up by tambon administrations throughout the country. A committee headed by Savit Bhodiwihok, minister of the PM's Office, will help screen state spending programmes and set up auditing and monitoring systems. The Finance Ministry says it hopes to disburse 39 billion baht by the end of this fiscal year in September, with the remaining 14 billion in funds to be spent during the next fiscal year.

Prime Minister Chuan Leekpai said while the government could not say that its measures to spur the economy had been fully successful, overall indications were that the worst had passed.

Latest figures pointed to gains in local manufacturing for January and February, following months of steady decline since August 1997. Inflation and interest rates had also shown steady declines. Mr Tarrin said value-added tax collections had improved slowly since October, while bank credit and imports in February had also shown signs of improvement. "The measures are not the last card for the government to play. There will be additional steps taken - not only with the financial system, but also towards boosting exports, increasing efficiency in government disbursements and new measures to stimulate direct investment." He said the government had to take a prudent approach in drafting the measures to avoid increasing the state's burden over the medium-term.

But overall, the stimulus package amounts to almost 2.6 per cent of gross domestic product. Some $750 million in additional funds from Japan's Miyazawa plan was available if needed, while the Japanese Export-Import Bank would also soon sign a $500 million loan for the Industrial Finance Corporation of Thailand.

Reza Moghadam, IMF chief representative in Thailand, said the package would help "strengthen the social safety net for those hurt most by the crisis, while achieving the maximum impact on domestic demand". 

"The tax cuts have been carefully designed to boost consumer expenditure and lower costs, particularly for small businesses. The temporary cut in the value-added tax will give a strong boost to consumption in the short-run, while protecting revenues over the medium term," he said.

Bad debts still the government's top-most priority

The stimulus package announced yesterday by the government is seen by some politicians and academics as just a supplementary measure which will not lead to full economic recovery if efforts to deal with the main issue of bad debts remains sluggish. 

Dr. Somchai Pakaparkvivat, Thammasat University's political science lecturer, said the solution to the problem in the financial sector remained the government's top-most priority. Without swift action to settle bad loans and restructure debts in the financial sector, investor confidence would not return, he said.The package announced yesterday is aimed at stimulating spending and without confidence, people will continue saving, he said. Additionally, the government must find ways to encourage banks to extend new loans to spur the economy. The financial sector was nearly drained last year but it has refused to approve new borrowings even with so much money in hand at present, he said.

Dr. Sompob Manarangsan, an economist at Chulalongkorn University, said he had anticipated that the government would spend more money on unemployment. Only 25 per cent of the 53-billion-baht job creation fund will be spent with the aim of creating jobs for 480,000 people, he said.

There has been discussion that the amount should not be less than 30 per cent of the total fund. The lesser spent for this purpose the weaker the impact of this scheme, as direct employment is seen as a more effective way to increase the people's spending power, he said. He called for more decisive and powerful measures from the government to boost the momentum of the package announced yesterday.

An economic expert from the opposition described the package as being just a "saline injection" which would not lead to full recovery. The measure was too little too late, according to New Aspiration Party's economic team leader Dr. Surasak Nananukul. "The people have been waiting for this measure for a long time. The late introduction will blunt its effect which otherwise would have contributed towards a full recovery," Dr Surasak said.