THAI FINANCE MINISTER STILL SEARCHING FOR THE

UNCLAS BANGKOK 002691 SIPDIS SENSITIVE SIPDIS STATE FOR EAP/MLS AND EB TREASURY FOR OASIA COMMERCE FOR EAP/MAC/OKSA PASS TO USTR FOR WEISEL E.O. 12958: N/A TAGS: ECON EFIN PGOV TH SUBJECT: THAI FINANCE MINISTER STILL SEARCHING FOR THE "MIDDLE GROUND" REF: A. BANGKOK 1399 ¶B. BANGKOK 1669 ¶1. (SBU) Finance Minister Dr. Chalongphob Sussangkarn told the Ambassador that the Thai government is working towards achieving a "middle ground" in its policies after being "too extremely moderate" in its initial attempts to unwind former PM Thaksin's populist economic policies. On the other hand, the Minister also said that certain aspects of Thai policy are now in the hands of government bureaucrats who care mostly about centralizing control in their own hands (as evident in the pending Retail Act) or one-issue activists who have taken over health policy. ¶2. (SBU) Chalongphob believes that the government is now finding its way along a more moderate path as Ministers, the National Legislative Assembly and the Council for National Security have learned to better coordinate their activities and vet legislation and policy throughout government. That said, the Minister defended what many believe are the immoderate amendments to the Foreign Business Act, saying they were "necessary so that loopholes are closed and our investment policy is clear." He acknowledged, however, that the retrospective nature of the proposed amendments is a problem but he declined to offer any possible solution other than to strongly imply that the law itself would likely be changed by a new government and that the amended law would inevitably have its own loopholes to be exploited. ¶3. (SBU) While acknowledging that the Thai economy continues to grow only because of the growth of exports (up 17.7 percent Q1 in US$ terms, but about 11.6% in baht terms),with continued weakness in domestic consumption and private investment, he expressed hope (if not confidence) that with increased government infrastructure spending to come in Q3, the economy will soon begin to turn around. He noted that on a recent visit to Japan, Japanese portfolio investors expressed keen interest in Thai equities. The Minister expressed confidence that increased government and private sector spending on infrastructure would being by September and this would help stimulate the economy and improve confidence. ¶4. (SBU) When the Ambassador remarked that declining foreign direct investment was still a problem and Vietnam was attracting much more of it than Thailand, Chalongphob replied that it was good that the region's economies all grow, noting that Thailand "has 1.5 million illegal workers." He also said that Thailand could not hope to retain industries such as garments and footwear and should focus on areas such as automotive where Thailand enjoys a comparative advantage. ¶5. (SBU) On the political front, the Minister posited that perhaps the idea of a referendum on an unpopular constitution was a clever idea concocted by the coup-makers so that they could simply choose an old constitution off the shelf without being criticized as reactionary. The current political goal, he said, was to "return to square one" of the political process, with square one meaning the days prior to Thaksin becoming PM. He acknowledged that this would probably result in weak coalition governments. ¶6. (SBU) Comment: While Chalongphob was generally upbeat over the medium term economic and political outlook, he seemed in many ways to be playing the part of government loyalist; reluctant to criticize a government of which he is now part. We think that, given his various comments about the lack of popularity of the mooted constitution and criticism of the capital controls enacted in December, Chalongphob's short-term outlook is probably more negative than he let on. His goal seems to be to prevent the current government from proceeding with any more bad economic policies and hoping that a new government will somehow reverse the damage already done. BOYCE