VZCZCXRO8016
PP RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHBK #3144/01 2911052
ZNR UUUUU ZZH
P 171052Z OCT 08
FM AMEMBASSY BANGKOK
TO RUEHC/SECSTATE WASHDC PRIORITY 4741
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
INFO RUEHCHI/AMCONSUL CHIANG MAI PRIORITY 5724
RUCNASE/ASEAN MEMBER COLLECTIVE PRIORITY

UNCLAS SECTION 01 OF 02 BANGKOK 003144 
 
STATE FOR EAP/MLS AND EB 
STATE PASS TO USTR 
TREASURY FOR OASIA 
COMMERCE FOR EAP/MAC/OKSA 
SINGAPORE FOR FINATT BAKER 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EINV ETRD TH
SUBJECT: THAI GOVERNMENT RESPONSE TO FINANCIAL CRISIS 
 
BANGKOK 00003144  001.2 OF 002 
 
 
Sensitive But Unclassified.  For Official Use Only. 
 
REF: BANGKOK 2885 
 
¶1.  (SBU) Summary: The RTG agreed October 14 to a series of measures 
aimed at helping offset the impact of the global financial crisis 
and shoring up economic growth.  The plan calls for expanding of tax 
exemptions for long-term personal investments;  accelerating budget 
disbursements and increased investments in megaprojects; the setting 
up of government "matching funds" to partner stock market 
investments with private sector entities; boosting 
government-to-government cooperation through ASEAN; increasing 
dollars in supply of dollars in the FX market; encouraging 
commercial lending, and export and tourism activities.  While the 
plan could help shore up the Thai economy if fully implemented, much 
of the plan remains short on detail and would take months to enact. 
Financial industry leaders also point out that some measures, namely 
the setting up of "matching funds,"  have been tried and failed in 
the past, could increase risk for private firms, market volatility, 
and crowd out private funds.  End Summary. 
 
¶2.  (SBU) Comment: Just announced this week, these new economic 
measures have yet to have an appreciable impact.  The SET remains 
volatile and concern about a global economic slowdown pervade the 
financial community.  The plan appears to be the handiwork of DPM 
Olarn and thus may not last long if, as many predict, the current 
administration falls amid continuing political instability.  If 
fully enacted, the plan could help shore up growth in the Thai 
economy at the margin.  End Comment. 
 
¶3.  (U) On Monday October 13, Prime Minister Somchai chaired his 
government's first Economic Ministerial Committee, which agreed to 
enact measures to help offset the impact of the global financial 
crisis.  On October 14, the RTG cabinet approved the measures so 
that implementation can go forward.  Deputy Prime Minister Olarn 
Chaipravat (a member of the Ministerial Committee) stated publicly 
that if fully implemented, the measures will inject $35 billion into 
Thailand's economy during the FY 2009.  The RTG expects the measure 
to help boost the country's economic growth to at least 5.1 percent 
(yoy) in 2008 and 4.0 percent (yoy) in 2009.  The RTG's reported 
plans are organized into six general areas. 
 
The Thai Governments Plans 
-------------------------- 
¶4.  (U) Capital Markets: The RTG will expand the tax exemption for 
personal investment in long-term equities and retirement funds from 
the current exemption of $14,700 to $20,590 annually.  Deputy 
Minister for Finance Pradit Phataraprasit revealed that the new tax 
exemption will cost the government $26.5 million annually.  In 
addition, the Stock Exchange of Thailand (SET) plans to set up two 
"matching funds" to buy shares in the stock market: a $294 million 
matching fund in partnership with financial institutions and a $59 
million fund with major listed companies.  The goal of the funds: to 
shore up share values in the stock market.  The SET would commit to 
investing in stocks along side private institutions, at a yet to be 
determined ratio.  Private companies would manage the funds, 
although it is still unclear whether which entity (the SET, fund 
managers, or private firms) would determine in which stocks to 
invest. 
 
¶5.  (SBU) Liquidity: To ensure that liquidity levels will be 
adequate for all entrepreneurs (industries and SMEs), the RTG will 
encourage commercial banks to extend loans by at least 5 percent in 
2009 (an additional $11.8 billion) and encourage Specialized 
Financial Institutions or SFIs (such as the government housing and 
savings banks) to increase loans by another $1.47 billion.  The Bank 
of Thailand (BOT) will also increase the supply of U.S. dollars in 
the foreign-exchange market.  (Note: a BOT official told Econoff 
there are signs of a shortage of dollars in the market, due to 
capital outflows from both the stock and bond markets.  End Note.) 
 
¶6.  (U) Export and Tourism: By the end of 2008, the government will 
attempt to increase revenues from both exports and tourism sectors 
by at least 5 percent ($8.8 billion for exports and $1.76 billion 
for tourism).  The government will focus on expanding export markets 
in nations that have not yet been directly affected by the financial 
crisis (e.g., the Middle East, Australia, Africa, and Latin 
America). 
 
¶7.  (U) Domestic Economic Stimulus:  The RTG will accelerate budget 
disbursements with a target of $5.3 billion during the first half of 
this fiscal year, starting October 2008.  It will also encourage 
Thais to travel (and spend) domestically.  (Note: the FY2009 planned 
 
BANGKOK 00003144  002.2 OF 002 
 
 
budget expenditure is $54 billion.  End Note.) 
 
¶8.  (U) Investment: The RTG will accelerate mega-project investments 
and increase extra budget expenditures on those projects by another 
$2.9 billion from an initial $7.4 billion.  Out of the new 
expansion, $1.76 billion will be for mass transit in Bangkok, $294 
million for national railways, and $882 million for energy projects. 
 
 
¶9.  (U) Asian Financial Community: The RTG plans to take the 
opportunity to boost cooperation between ASEAN and six other 
economies (China, Japan, South Korea, India, Russia and Australia) 
when Thailand hosts the ASEAN Summit in December. 
 
Reaction/Reality 
---------------- 
¶10.  (SBU) While steps like the accelerated disbursement of state 
budgets could provide a relatively quick boost to the Thai economy, 
others will require planning (and time) before becoming operational. 
 As an example, the RTG has yet to announce detail on how it will go 
about encouraging loans from commercial banks or SFIs or attempting 
to increase export and tourism revenue.  It did not provide details 
on its plans for the ASEAN Summit, nor on what basis the SET will 
match investment funds from financial institutions and major 
companies (e.g., a one to one basis, a one to two basis, etc.).  In 
order to flesh out these and other details, the RTG will likely need 
several months. 
 
¶11.  (SBU) Some aspects of the RTG plan have been met with 
skepticism.  Regarding the SET matching funds, the Chairman of a 
Thai investment bank noted prior governments in the early 1990's 
initiated similar plans, but they did not succeed.  The head of an 
asset management company explained that private institutions at the 
time remained wary of risky equity investments in a falling market, 
and opposed any perceived government pressure to take on additional 
risk.  As such, the funds were underutilized.  He also noted the 
matching funds also could be problematic in that, by investing in 
equities, banks may increase their risk exposure, a questionable 
move in times of volatile markets.  Regardless, as the SET's total 
market capitalization is approximately $104 billion dollars, the 
existence of relatively small SET funds (valued at less than $400 
million) may not restore calm to the markets.  The presence of 
government funds may also crowd out the development of the private 
mutual fund industry and could create more volatility.  An official 
in the legal office of the BOT noted the Financial Institutions 
Business Act limits the amount that financial institutions can 
invest in equity (e.g., can invest no more than 20 percent of its 
total capital funds in equity in general, and no more than 5 percent 
of its funds in any one company; can hold no more than 10 percent of 
a single company's public shares).  While the BOT could relax such 
restrictions, it is unclear whether the BOT plans to do so.