THAI INVESTMENT SPENDING STIMULUS PACKAGE: 12 BILLION NOW,

UNCLAS SECTION 01 OF 03 BANGKOK 001547

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STATE PASS TO USTR
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SIPDIS

E.O. 12958: N/A
TAGS: EFIN ECON EINV ETRD TH
SUBJECT: THAI INVESTMENT SPENDING STIMULUS PACKAGE: 12 BILLION NOW,
12 BILLION LATER

REF: A) BANGKOK 384 (Additional Thai Government Measures) B)
BANGKOK 175 (Economic Stimulus Plan)

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Sensitive But Unclassified. For official use only.


1. (SBU) Summary. On June 22, the Thai government cleared a
hurdle when a key element of its overarching plan to stimulate the
Thai economy in light of the global economic crisis was approved.
The Thai Parliament passed an emergency decree allowing the Royal
Thai Government (RTG) to borrow approximately USD $12 billion (400
billion baht) to finance "shovel-ready" investment projects, part of
the RTG's broader USD $43 billion investment spending plan focused
largely on job-creating infrastructure projects. Cognizant that the
planned borrowing will bump the Thai government up against its
allowed debt-to-GDP ceiling, much of this first tranche of borrowing
will go toward reducing the government deficit. Meanwhile, a
related parliamentary bill requesting another USD $12 billion will
undergo debate in August. The Ministry of Finance anticipates
generating over a million jobs and increasing growth 1.5 percent
through the stimulus packages. End Summary.


2. (SBU) Comment: Prime Minister Abhisit won the first round in his
proposed USD $24 billion borrowing plan, but the victory could prove
to be short-lived if projects that are supposed to be funded do not
get off the ground quickly. While the private sector generally
applauds the loans, the RTG must demonstrate the political will and
perseverance to use the borrowed money effectively towards proposed
projects, many of which have been languishing for years.
Nevertheless, getting the stamp of approval for his stimulus package
represents a significant achievement for Abhisit's coalition and
demonstrates the Abhisit government is willing to take bold measures
to show it is doing what it can to lessen Thailand's continuing
economic woes. Debate over the second USD $12 billion loan is
expected to be more contentious. End Comment.


A Brief History of USD $24 Billion
--------------


3. (SBU) The Thai Government cabinet initially approved a proposal
to borrow USD $24 billion on May 6 to raise capital, largely for
investment spending and reducing the deficit. The money would
finance an expected 2009 fiscal year budget deficit and be used
towards job-creating investment projects that are part of a
three-year investment spending plan to combat the global economic
crisis. (Note: see reftels for additional measures the RTG has
taken to stimulate the economy to combat the affects of the global
economic crisis. End note). The proposal was split into two equal
parts: an emergency decree covering approximately USD $12 billion
and a parliamentary bill covering an additional USD $12 billion. By
submitting part of the proposal as an emergency decree,
parliamentary debate was abbreviated and the decrees subject to a
strict up or down vote according to the Thai constitution (similar
to U.S. "fast track" legislation). Meanwhile, the parliamentary
bill portion will undergo full debate and review in the Thai
parliament.


4. (SBU) The pro-Thaksin Puea Thai Party challenged the emergency
decree on the grounds that the economic situation did not constitute
an "emergency" and, according to section 184 of the Thai
Constitution, the use of an executive decree was not warranted. The
issue was subsequently submitted to the Constitutional Court, which
unanimously ruled on June 3 that the decree was constitutional and
necessary for "economic security." The emergency decree was
overwhelmingly passed by the lower house of parliament on June 15.
Subsequently, the senate, the upper house of the Thai Parliament,
endorsed the decree by a vote of 69 to 48 with 11 abstentions on
June 22. Media reports indicated that the senate debated the bill
for several hours and passage came only after Prime Minister Abhisit
cut short an official trip to Singapore to lobby senators.


5. (SBU) The Thai government is seeking authorization to borrow a
second tranche of funds (also approximately USD 12 billion) through
a parliamentary bill. The lower house of the Thai parliament
already passed the bill on June 17. The bill will next be taken up
by the senate at an ordinary session in August (unless an
extraordinary session is convened before then).


Where the Money Comes From

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6. (SBU) Of the USD $12 billion authorized, funding will initially
come from the issuance of up to USD $1.5 billion worth of government
savings bonds that will mature in five years. Press reports
indicate the bonds will yield 3 percent the first two years; 4
percent the third year; and 5 percent the fifth year. The RTG
believes these rates are attractive and competitive against
fixed-deposit rates at commercial banks that generally yield lower
interest. The first bonds will go on sale in mid-July. According
to the RTG, senior citizens will be targeted for the savings bonds
(about USD $1 billion of the bonds will be reserved for citizens
over 60). The Finance Ministry's Public Debt Management Office
(PMDO) will be the primary issuing agency. After the initial bond
issuance, the RTG will determine whether further borrowing will be
necessary. If so, the RTG will likely issue more bonds or borrow
from local financial institutions.


"Stimulus Plan 2" Investment Spending
--------------

7. (SBU) Up to half of the USD $12 billion raised by the emergency
decree will go towards reducing the deficit created by a tax revenue
shortfall as a result of the economic downturn. (Note: The Thai
cabinet has voluntarily imposed a cap on the deficit to GDP ratio at
fifty percent. End Note). What remains will largely go towards
"shovel-ready" projects that are part of the RTG's three-year, USD
$45 billion investment spending plan, known as "stimulus plan 2" (or
SP2),covering 2010-2012. According to the RTG, about $35 billion
of the projects in SP2 are "shovel-ready." The Ministry of Finance
told the press that they expect the plan's total expected investment
projects would boost economic growth 1.5 percent and create over a
million jobs.


8. (SBU) SP2 involves approximately USD $45 billion or Baht 1.43
trillion worth of investment projects (reportedly about 6,000
projects that range in size and budget) designed to create jobs.
Should it require additional borrowing to cover investment project
costs not covered by the government's budgets or domestic borrowing,
the RTG is considering borrowing from off-shore sources (ref b).
Offshore funding would be subject to approval from the Thai
Parliament. Public private partnerships are also being sought to
fund projects.


9. (SBU) The RTG anticipates formally beginning funding projects in
the next fiscal year in October, although many projects are already
underway. According to the Ministry of Finance, SP2's USD $45
billion in investment projects are broken down as follows:

Infrastructure development (72.8 percent of total)
Farm irrigation and water supply (14.7 percent)
Increasing income and quality of life (6.4 percent)
Education (3.8 percent)
Developing creative economy (1.3 percent)
Healthcare (0.6 percent)
Tourism (0.4 percent)


10. (SBU) Infrastructure projects include expanding the
mass-transit system; developing highways and roads; creating a
dual-track rail system on the eastern seaboard; water transportation
improvements; and telecommunications projects. Some of these
projects have been in gestation for long periods, dating to the
Thaksin period, when large infrastructure projects were commonly
referred to as "megaprojects".


Private Perspectives
--------------

11. (SBU) The private sector has generally applauded this next step
in the Thai government's overall economic stimulus package. Supavud
Saicheua, Managing Director at a large securities firm, told econoff
July 23 that the RTG "had to do something" to shore up the Thai
economy. Supavud believes that SP2 could conceivably boost GDP
since the RTG's planned USD $45 billion in spending over three years
amounts to about 1.5 percent of GDP annually. However, implementing
the projects in a timely fashion will require political will and
perseverance, according to Supavud. Some of the proposed projects
have been on the books for years; some have been seemingly stuck in
the "feasibility study" phase indefinitely. Supavud believes the
RTG will be much more successful in implementing smaller projects in
SP2 as opposed to large "megaprojects". He noted that many of the

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planned projects are "not spectacular", but things the government
would be doing anyway, such as road maintenance and expansion, or
digging wells. These projects, he suggested, stand the best chance
of being successfully completed.

JOHN