'Thailand invests too little in infrastructure'
'Thailand need to invest more in infrastructure; that determines the future of the country.' This says Prasarn Trairatvorakul, governor of the Bank of Thailand.
Investment in infrastructure now stands at 16 percent, up from 23 percent prior to the 1997 financial crisis. Malaysia and Vietnam have much higher rates.
Prasarn is not enthusiastic about the current government's populist policies, such as tax refunds for first car buyers. The government money that goes to it is wasted money. They are better spent on investments. In addition, the financial burden of health care and unemployment benefits will increase in the coming years. Prasarn is also concerned about the funding of the rice mortgage system as commercial banks may be called in to help.
Thailand's open economy, calculated by Barclays Capital at 177 percent of GDP, makes it vulnerable to many global economic risks. According to Prasarn, the eurozone crisis poses a major risk to Thailand, which depends on Europe and the US for 25 percent of its exports. The high demand for liquidity in Europe for bank recapitalization could reduce capital inflows to Thailand.
Nevertheless, Prasarn is optimistic: the banking system and foreign reserves are now even stronger than in 2008 when Lehman Brothers collapsed. After the Leman debacle, it took three years for banks' capital position to return to pre-3 levels. Thailand's bank capital is now valued at 2008 trillion baht. Foreign reserves increased from $1,19 billion in 111 to $2008 billion as of September 181,3.
The short-term economic outlook is good, but the long-term outlook seems murky with several tough issues.