NEW PM TACKLES THAILAND'S ECONOMIC CHALLENGES

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E.O. 12958:N/A
TAGS: ECON EFIN EINV ELAB ETRD KIPR PGOV TH
SUBJECT: NEW PM TACKLES THAILAND'S ECONOMIC CHALLENGES

REF: A. 08 BANGKOK 3774 (NEW COMMERCE MINISTER)

B. 08 BANGKOK 3747 (NEW FINANCE MINISTER)

C. 08 BANGKOK 3746 (NEW ECONOMIC TEAM)

D. 08 STATE 134459 (FINANCIAL CRISIS REPORTING)

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1. (SBU) SUMMARY: Thailand's fourth quarter economic figures show an
"economy in crisis," Prime Minister Abhisit Vejajjiva told numerous
local and foreign audiences over the last several weeks during a
non-stop schedule of speeches to woo the country with his cabinet's
economic stimulus plans. "Manufacturing is down; productivity is
down; exports are down; tourism is down." But Abhisit and his
finance minister, Korn Chatikavanij, believe they have a good mix of
programs and incentive packages to help Thailand weather, at least
in the short run, the global economic crisis. In comments to foreign
audiences, Abhisit has pledged to liberalize the ability of foreign
business to operate in the Thai economy and has said he will curtail
the use of compulsory licenses for pharmaceuticals. END SUMMARY.


2. (SBU) COMMENT: The analysis behind Abhisit's economic proposals
appears well thought out and is impressively presented, a welcome
change from the economic policy-making of preceding governments over
the last year. Abhisit's pitch is also attuned to play well
politically to an audience that demands the continuation of the
ever-popular populist programs begun under former Prime Minister
Thaksin Shinawatra, incurring some criticism from the Bangkok
business sector that the program has too little in it for them.
Abhisit and Korn are also aware that there may be little they can do
to rescue Thailand's economy absent improvement in the global
economy, and are developing longer-term investment plans that can be
rolled out later. Even if the economy does not turn around soon,
they want to build confidence that their government is Thailand's
best bet to deal with the challenges. END COMMENT.

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Abhisit Sprints from the Starting Line
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3. (SBU) Prime Minister Abhisit Vejajjiva has spent much of his
first few weeks in office explaining how his administration hopes to
tackle the current economic challenges facing Thailand -- and he has
done so in a large-scale public relations effort. Abhisit headlined
numerous big-ticket events, including extravagant affairs sponsored
by the Bangkok Post, the Thailand Board of Investment, and the
Foreign Correspondents Club of Thailand. He presented pro-business
plans to influential audiences amidst his populist proposals to
rescue the Thai economy from what appears to be a worsening
situation.


4. (U) Thailand's fourth quarter economic figures show an "economy
in crisis," Abhisit told a group of more than 1,000 press and
business leaders at the January 15 Bangkok Post event. He added that
nearly every economic and financial indicator is in the red:
"Manufacturing is down; productivity is down; exports are down;
tourism is down." The Ministry of Finance announced on January 21
that the Thai economy is likely to contract further in the first
quarter of 2009 because of weaker exports and fewer tourist
arrivals. Abhisit's outreach efforts will continue over the next
several weeks; he addresses the American Chamber of Commerce at a
dinner on February 3, which will also include a conference call with
the U.S. Chamber of Commerce in Washington.

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Stimulus Package -- Priority No. 1
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5. (SBU) Abhisit has pitched his economic stimulus ideas to Bangkok
elites on nearly a daily basis since he assumed his position in late
December. He describes the initial proposal, valued at approximately
120 billion baht (US$3.5 billion),as "quick, targeted spending" to
"sustain purchasing power and promote economic growth." Consisting
of largely populist measures, the "quick spending" essentially
consists of a one-time cash payment of 2000 baht (nearly US$60) to
low-income earners, supplementary financial support to rural
communities, and subsidies to lower transportation and utilities
costs for the poor and elderly. Abhisit told the January 19 Board of

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Investment audience that the package would "make sure our people can
continue to spend" during this economic downturn.


6. (SBU) Abhisit pledged to present the official budget request to
Parliament by the end of January. Despite the political hurdles and
various layers of approvals required, Abhisit hopes to quickly
inject the 120 billion baht into the economy with a "big splash." He
has said that the funds would leave government coffers by late March
or early April, but most observers believe these projections are
overly optimistic. His economic team is reportedly busy at work on
numerous other options that could be presented throughout the coming
months. (Note: Details on the economic recovery proposals are
provided septel.)

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Pro-Foreign Business, Too
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7. (U) In his January 19 presentation, Abhisit began with a nod to
the largely foreign investor audience: "Investors are the real
drivers of the Thai economy; your continued faith in the Thai
economy will be rewarded." Abhisit added that government should
provide certainty and rules to those who conduct business, and avoid
government efforts to manage the economy. He promised to "work
closely with business," but noted "I have no right to your
cooperation; I will have to earn it... Our government will continue
to be market friendly and open to the world."


8. (U) Abhisit emphasized that his administration is committed to
market access and market liberalization, even amidst the ongoing
global financial crisis. In a pitch to the largely foreign audience
on January 19, Abhisit emphasized that he has "no intention" to
amend the Foreign Business Act in a way that would further restrict
foreign ownership in certain business sectors. On the contrary, he
said that he had already asked the government's oversight committee
for the Foreign Business Act to review what additional sectors can
be liberalized.


9. (U) When asked about the previous government's mega-projects and
future investment opportunities, such as the southern seaboard,
Abhisit said, "Most, if not all, will proceed. However, these
projects require a significant amount of time before we realize the
fruits of the investments." When asked about rising power costs for
business, particularly the high costs of natural gas, Abhisit
answered that he had called on the National Energy Policy Committee
on January 16 to conduct a "complete review" of the government's
energy policies, including the pricing structures for energy.
Abhisit stated that the government should not allow for monopoly
returns, and the monopolistic elements of the state-controlled
petroleum conglomerate PTT that have lead to unfair costs should be
"corrected." He noted that he expected the 2008 problems of high
food and fuel prices to return in the near future, and he plans to
invest significant government funds in alternative energy
technologies, particularly those that will help boost the
agricultural sector.


10. (SBU) Touching on topics he believes have been of concern to
foreign investors, Abhisit also said his government is "aware of the
consequences internationally" for Thailand's compulsory licensing of
pharmaceutical products. While recognizing that the government needs
to improve access to medicines, Abhisit said he will seek "other
acceptable means" to improve healthcare for Thai citizens, rather
than pursue compulsory licenses. "We will not violate any
international agreements, and we will comply with all WTO
standards." (Note: We have never taken the position that Thailand's
issuance of compulsory licenses violated international agreements,
but apparently the PM believes that we, or maybe the Europeans,
think that. End Note.)

JOHN