VZCZCXRO3382
PP RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHBK #0175/01 0230934
ZNR UUUUU ZZH
P 230934Z JAN 09
FM AMEMBASSY BANGKOK
TO RUEHC/SECSTATE WASHDC PRIORITY 5763
RHEHNSC/NSC WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
INFO RUEHCHI/AMCONSUL CHIANG MAI PRIORITY 6101
RUCNASE/ASEAN MEMBER COLLECTIVE PRIORITY

UNCLAS SECTION 01 OF 03 BANGKOK 000175 
 
STATE FOR EAP/MLS AND EB 
STATE PASS TO USTR 
TREASURY FOR OASIA 
SINGAPORE FOR FINATT BAKER 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EINV ETRD TH
SUBJECT: POLITICALLY SAVVY, THAILAND'S ECONOMIC STIMULUS PLAN MAY 
NOT BE ENOUGH 
 
BANGKOK 00000175  001.2 OF 003 
 
 
Sensitive But Unclassified.  For Official Use Only. 
 
REFS: A) 08 STATE 134459  B) BANGKOK 163 
 
¶1.  (SBU) Summary: To reenergize the Thai economy in the face of the 
global financial crisis, the Royal Thai Government (RTG) has rolled 
out a USD 4.4 billion economic stimulus plan that aims to increase 
the purchasing power of Thailand's poor and middle class.  The plan 
is composed of both targeted fiscal expenditures and tax measures. 
Expenditures include a 2,000 baht (USD 57) cash payment to poor 
individuals, cash transfers to rural villages, an extension of 
transportation and utilities subsidies, education allowances, and 
payments to the elderly.  Tax measures include increased deductions 
on the purchase of new homes, and relief measures to small, medium, 
and micro enterprises.  The RTG will also expedite investments 
through state-owned enterprises and is developing plans to use 
specialized financial institutions (such as the state-run Small and 
Medium Enterprise Development Bank) to support and/or guarantee 
loans.  Because of the plan's small size and legal ceilings on 
fiscal deficits, many analysts remain skeptical this RTG effort will 
have significant impact.  End Summary. 
 
¶2.  (SBU) Comment: The Abhisit government's plan is politically 
savvy.  Doling out aid to villages should tap into the populist 
sentiments that gave former Prime Minister Thaksin such political 
power.  Handing out cash at the grassroots level is strikingly 
similar to (always popular) vote-buying methods but will be legal, 
transparent and come with a reasonable economic justification: 
putting cash into the hands of people most likely to spend it to 
stimulate the economy.  To its credit, Abhsit's funding of school 
expenses could give a much-needed boost to education participation 
levels and have beneficial long-term impact. Toss in money to the 
elderly and some tax breaks for businesses and you have a plan with 
a little something for everyone.  Even if the analysts are right 
that the total package is not enough to save Thailand from being 
dragged down by the global economic crisis, it may be enough to give 
the Abhisit government a longer lease on life.   End Summary and 
Comment. 
 
¶3.  (SBU) In a bid to boost the Thai economy in response to the 
global financial crisis, the Abhisit administration has rolled out 
an economic stimulus plan mainly targeting Thai consumers. 
Confirmed in two separate cabinet meetings on January 13 and January 
20, a supplementary budget expenditure of approximately USD 3.3 
billion (116.7 billion baht)and a USD 1.1 billion package of tax 
breaks (respectively) are designed to reduce the cost of living and 
increase the purchasing power of middle and lower income Thais.  The 
RTG will submit a supplementary budget request to Parliament within 
the next few weeks.  At a January 14 press conference, Prime 
Minister Abhisit explained the rationale behind the plan: increase 
consumer spending to help keep Thai businesses afloat, which will in 
turn create employment and GDP growth.  The RTG hopes its USD 4.4 
billion plan will increase GDP growth in 2009 by over 1 percent. 
What follows is a breakdown of the plan as presented in a variety of 
fora, including a January 15 conference in which the Prime Minister 
and much of his economic team participated. 
 
Stimulus Plan Part I - Fiscal Spending 
-------------------------------------- 
¶4.  (SBU) Of the USD 3.3 billion supplementary budget request, USD 
2.8 billion will be allocated for fiscal expenditures while the 
remaining will be used to replenish the RTG cash balance at the Bank 
of Thailand (Note: Under Thai law, should the RTG draw funds from 
its cash balance account, it must repay some portion of it the next 
fiscal year.  End note).  The targeted expenditures include: 
 
- A one-time cash payment of USD 57 (2,000 baht) to each adult 
earning less than USD 429 per month (expected to cover approximately 
9.4 million people and cost approximately USD 542 million). 
 
- The extension of five public service subsidy programs for an 
additional six months (e.g., free bus/train, free utilities with 
maximum usage).  The measure is expected to cost approximately USD 
326 million. 
 
- The provision of a one-month training and a three-month-wage 
subsidy to approximately 240,000 unemployed persons.  The measure is 
expected to cost approximately USD 197 million. 
 
- The provision of free education for 15 years (3 of preschool and 
12 in primary and secondary) for state-schools, including free 
uniforms and textbooks for approximately 10 million students 
 
BANGKOK 00000175  002.2 OF 003 
 
 
nationwide.  The measure is expected to cost approximately USD543 
million. (Note: K-12 public education has always been "free" but 
ancillary costs for uniforms, supplies, etc., have amounted to a 
barrier to education for many poor families.  This measure is 
designed to eliminate that barrier.) 
 
- The provision of a USD 17 per month stipend for approximately 
830,000 community healthcare workers (as well as funds to improve 
standards of 2,609 health-care service stations).  The measure is 
expected to cost approximately USD 117 million. 
 
- The provision of a "sufficiency economy fund," a cash transfer to 
78,358 rural villages.  A carry over program by a different name 
from the prior government, the measure is expected to cost 
approximately USD 434 million. 
 
- The provision of additional pension payments of USD 14 per month 
to five million senior citizens (sixty years-old and up).  The 
measure is expected to cost approximately USD 257 million. 
 
- The investment of USD 121.7 million into rural irrigation 
projects, small reservoir construction, and rural roads 
construction. 
 
- The construction of public housing units for police officers.  The 
measure is expected to cost approximately USD 257 million. 
 
Stimulus Plan Part II - Tax Measures 
------------------------------------ 
¶5.   (SBU) Seven tax measures approved January 20 aim to decrease 
the tax burden on business operators and home buyers, to promote 
spending in targeted industries, and to support corporate 
restructuring.  The measures are effective retroactively from 
January 1, 2009.  The RTG expects a loss of tax revenue from the 
measures' implementation of approximately USD 1.1 billion during the 
current fiscal year.  Details of the measures follow: 
 
- Real-estate:  Buyers of new housing units during 2009 are eligible 
to deduct taxable income up to USD 8,571 of their loan principal. 
This is in addition to the current tax allowance of USD 2,857 for 
interest payments.  The RTG also extended to March 2010 (from March 
2009) the reduction of related taxes such as transfer fees (paid by 
home buyers), the mortgage registration fee with banks (normally 
paid by home buyers), and business taxes (paid by sellers, in this 
case developers).  The RTG expects a loss of USD 186 million in tax 
revenue for the individual tax deductions and USD 857 million from 
the extension of the transfer fee and special business tax 
reductions. 
 
- Operators of Small and Medium Enterprises (SMEs): The minimum 
taxable income for individuals (or a group of individuals) running a 
SME has been increased from USD 1,714 to USD 28,571.  The measure 
will cover 970,000 SMEs and is expected to cost approximately USD 40 
million. 
 
- Micro and community enterprises: Similar to the SMEs measure, the 
minimum taxable income for micro-enterprises will be temporary 
increased (through 2010) from USD 34,286 to USD 51,429 for two 
years.  The measure is expected to help 58,000 micro-enterprises and 
result in lost revenue of approximately USD 6 million. 
 
- Tourism:  Thai companies hosting seminars and training classes 
within Thailand in 2009 can deduct up to double the expenses 
incurred.  The measure is expected to result in lost tax revenue of 
approximately USD 51 million. 
 
- Venture capital: Venture capital investments in SMEs that register 
with SEC before the end of 2011 will be eligible for tax exemption 
from capital gains. 
 
- Debt restructuring: Tax exemption will be provided for both 
debtors and creditors on restructuring of debt (details still to be 
announced by the RTG). 
 
- Corporate restructuring: Similarly, corporate restructuring in 
listed companies and limited companies will be exempted from tax in 
2009 (details still to be announced by the RTG as to whether this 
would involve exemptions on asset sales, etc.). 
 
Looking Ahead 
------------- 
¶6.  (SBU) In addition to the cabinet-approved fiscal spending and 
 
BANGKOK 00000175  003.2 OF 003 
 
 
tax measures, the RTG is developing additional fiscal spending 
measures (related to the tourist industry, etc.).  It is also 
developing plans to provide businesses with increased liquidity by 
capitalizing specialized financial institutions (SFIs) with up to 
USD 286 million in order to support and/or guarantee loans. 
According to a RTG presentation made January 15, Thailand's SME Bank 
would provide much of this assistance through soft loans to 
commercial banks, as would Thailand's Export-Import Bank which would 
provide increased export insurance for small operators.  In 
addition, the RTG will expedite investment expenditures through 
state-owned-enterprises (SOEs) (USD 8.8 billion) and municipal 
budgets (USD 10.5 billion) that have already been approved for the 
current fiscal year.   Finally, the government is pushing forward 
with its so-called mega-projects amounting to approximately USD 48.6 
billion, of which USD 12.6 billion is for commuter transit systems, 
USD 12.6 billion for road and rail transportation and communication 
projects, and USD 10.6 billion for energy projects. 
 
Domestic Fiscal constraints 
--------------------------- 
¶7. (SBU) The entire package of supplementary spending amounts to 
less than 2 percent of GDP, considerably smaller than fiscal 
packages announced by other Asian nations.  Unfortunately, the Thai 
government is somewhat constrained by budget rules; its annual 
deficit spending cannot exceed 20 percent of the budget (including 
the supplemental) plus 80 percent of loan principal repayments of 
the same budget year.  The RTG does have a few options beyond the 
budget.  For example, it may still have up to USD 2.7 billion 
available for additional borrowing capacity in the current fiscal 
year.  MoF officials suggested January 13 and 15 that the RTG will 
seek to increase official financial assistance as well; they intend 
to approach the World Bank and Asian Development Bank (ADB) to 
secure additional financing.  Some, but not necessarily all, of 
these funds could be used to fund mega-projects.  MoF officials 
admitted that straight budget support from the international 
financial institutions could be complicated to procure, especially 
from the ADB which is capital-constrained and targeting loans to 
low-income countries rather than middle-income countries like 
Thailand. 
 
Private Sector Reaction 
----------------------- 
¶8.  (SBU) Econoff and Treasury Regional Attache queried multiple 
private sector analysts (including from both Thai and local banks, 
foreign and Thai private securities firms, and a rating agency) 
January 13 - 16 about the RTG economic stimulus plan.  While many 
expressed hope the Abhisit administration -- with which they have a 
political affinity -- will succeed, most all suggested the fiscal 
spending and tax measures do not go far enough to fuel domestic 
consumer demand sufficiently to offset the impact of the global 
economic crisis.  Aware of the RTG's limited ability to stimulate 
the economy due to debt ceiling limits, some suggested the RTG could 
have better directed the fiscal spending measures.  The head of a 
private securities firm stated that while putting money directly 
into the hands of the masses may help secure political support for 
the Abhisit government, it would do more good economically in job 
creation programs such as public works projects.  While wanting to 
give the Abhisit government's plans the benefit of the doubt, most 
analysts with whom we spoke believe it will not succeed in turning 
around the beleaguered Thai economy and many are concerned that the 
fiscal constraints the government faces would limit its ability to 
provide further fiscal stimulus if this plan fails.