VZCZCXRO1263
PP RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHBK #0384/01 0440936
ZNR UUUUU ZZH
P 130936Z FEB 09
FM AMEMBASSY BANGKOK
TO RUEHC/SECSTATE WASHDC PRIORITY 6042
RHEHNSC/NSC WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
INFO RUEHCHI/AMCONSUL CHIANG MAI PRIORITY 6176
RUCNASE/ASEAN MEMBER COLLECTIVE PRIORITY
RUEHKO/AMEMBASSY TOKYO 1395
RUEHML/AMEMBASSY MANILA 0538

UNCLAS SECTION 01 OF 02 BANGKOK 000384 
 
STATE FOR EAP/MLS AND EB 
STATE PASS TO USTR 
TREASURY FOR OASIA 
SINGAPORE FOR FINATT BAKER 
MANILA FOR ADB 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EINV ETRD TH
SUBJECT: Additional Thai Government Measures to Stimulate the 
Economy 
 
REF: BANGKOK 175 (Economic Stimulus Plan) 
 
BANGKOK 00000384  001.2 OF 002 
 
 
¶1.  (SBU) Summary: The Thai government has approved additional 
measures to stimulate economic growth in the face of the mounting 
global economic crisis.  They focus on off-shore borrowing to 
finance job-creating projects and guarantee business lending (USD 2 
billion), and a stand-by credit facility for state-owned enterprises 
or SOEs (USD 5.7 billion).  The RTG, constrained by Thai law on its 
deficit spending level, is engaging the Asian Development Bank 
(ADB), the World Bank, and the Japan International Cooperation 
Agency (JICA) for its potential lending needs.  End Summary 
 
¶2.  (SBU) Comment: While the Ministry of Finance (MOF) will likely 
submit details on qualified projects related to the off-shore 
borrowing plan to the Cabinet within the coming weeks, it is unclear 
when the RTG will submit the entire off-shore borrowing plan to 
Parliament.  Details on the types of projects the RTG will focus on 
are scarce, but they will likely focus on transportation (roads and 
bridges), healthcare (hospital and medical equipment), and 
agriculture (dams).  The off-shore borrowing plan may also be a 
back-up to going through capital markets for funds in the event 
market conditions make a future domestic bond issuance difficult. 
Regardless of the sectors targeted, this additional program to 
energize the Thai economy through infrastructure construction comes 
as good news to analysts who have called for such investment 
spending since the RTG first announced its economic stimulus 
package.  End Comment. 
 
¶3.  (SBU) The Thai Cabinet approved February 3 a Ministry of Finance 
proposal for an off-shore borrowing program worth USD 2 billion 
(approximately 70 billion baht), the third part of the Abhisit 
government's economic stimulus plan to help revive the domestic 
economy (reftel details the first two parts, a 116.7 billion baht 
(USD 3.3 billion) fiscal spending package and a tax-break package 
worth 40 billion baht (USD 1.1 billion).  The borrowing program, 
geared toward state investment projects and an expansion of loans by 
the state banks, contains a mix of both short/medium and longer-term 
measures that the RTG hopes will create employment.  The RTG will 
now forward the proposal to Parliament for consideration.  The 
Cabinet also approved a separate measure, a short-term loan facility 
for state-own enterprises (SOEs), valued at 200 billion baht (USD 
5.7 billion). 
 
Off-shore Borrowing Program 
--------------------------- 
¶4.  (SBU) According to the MOF, funds raised through the off-shore 
borrowing program will be used for: 
 
A) Increasing capital within the state banks (also known as 
Specialized Financial Institutions or SFIs) for them to extend 
credit to, or guarantee lending for, exporters, small and medium 
scale entrepreneurs, and real-estate businesses.  Details have not 
yet been released on which state banks will receive funds, or how 
much.  In a related move, the RTG Economic Ministerial Committee 
(consisting of the key economic ministers) decided February 11 that 
8 billion baht (USD 229 million) will be used to increase capital at 
two state banks, the Export and Import Bank of Thailand and the 
Small Business Credit Guarantee Corporation or SBCG).  It did not, 
however, specify whether the source of funds for this initiative 
will be the offshore borrowing program or the RTG budget.  The full 
cabinet needs to approve the measure, and may do so at its meeting 
scheduled February 17.  In the meantime, the Economic Ministerial 
Committee asked the MOF to determine what the source of funds should 
be.  Regardless, the RTG expects the banks to expand business 
lending by approximately 250 billion baht (USD 7.1 billion). 
 
B) Investment in state-led, medium scale projects with the goal of 
job creation; to be completed within 15 months. 
 
C) Investment in state-led, large scale infrastructure projects with 
the goal of upgrading Thailand's competitiveness and productivity; 
to be completed within 36 months. 
 
D) Other investment projects/activities yet to be determined. 
 
¶5.  (SBU) The RTG plans to engage the Asian Development Bank (ADB), 
World Bank, and Japan International Cooperation Agency (JICA) to 
negotiate potential loans of USD 500 million, USD 1 billion, and 
USD 500 million (respectively).  According to the MOF, borrowing 
 
BANGKOK 00000384  002.2 OF 002 
 
 
costs from these three agencies, including swap rates (approximately 
2.38-3.70 percent annually) are lower than domestic borrowing costs 
(3.45 percent annually for 10-year bonds as of January 15). 
 
¶6.  (SBU) The RTG will reportedly set up a committee to screen and 
prioritize projects for the Cabinet's approval, to monitor/supervise 
the spending program, and to report to the Minister of Finance, 
Cabinet, and Parliament on the success of the projects and the loan 
disbursement process.  The committee will consist of 10 members: the 
Permanent Secretary of Finance (Chair), the Deputy Permanent 
Secretary of Finance (Vice-Chair), the Director of the RTG's Budget 
Bureau (equivalent to the USG Office of Management and Budget), the 
Governor of the Bank of Thailand, the Secretary-General of the 
National Economic and Social Development Board (the RTG's economic 
planning agency), the Director-General of the MOF's Fiscal Policy 
Office, the Director-General of the MOF's State-own Enterprises 
Policy Office, and the Director-General, Deputy Director-General, 
and Director of the MOF's Public Debt Management Office. 
 
¶7.  (SBU) With the inclusion of this new borrowing program 
Thailand's public debt will rise to approximately 42.0 percent of 
GDP.  Section 22 of the Thai Public Debt Management Act B.E. 2548 
(2005) allows the RTG to borrow from international sources annually 
to finance economic and social development investment projects.  The 
law limits off-shore borrowing to 10 percent of the annual budget 
appropriation (excluding any supplementary budget), thereby capping 
fiscal year's program at 183.5 billion baht.  In addition to the 70 
billion baht in new borrowing, the RTG has already committed to 
investing in prior projects worth 29.79 billion baht (USD 851 
million).  As such, the RTG still has 83.71 billion baht (USD 2.4 
billion) available for additional measures this fiscal year, should 
they be needed. 
 
Credit Facility for State-owned Enterprises 
------------------------------------------- 
¶8.  (SBU) The RTG Cabinet also approved February 3 a 200 billion 
baht short-term, stand-by credit facility, sourced from domestic 
financial institutions (both Thai and foreign-owned) and SFIs for 
State-owned Enterprises (SOEs)to use as for contingency borrowing. 
The facility, which does not require parliamentary approval, is only 
partially guaranteed by the RTG (although the RTG will retain the 
ability, on a case-by-case basis, to provide a full guarantee). 
(NOTE: Section 28 of Thailand's Public Debt Management Act requires 
that all loan guarantees by the RTG not exceed 20 percent of the 
total yearly budget; no more than 367 billion baht or USD 10.5 
billion in fiscal year 2009.  End Note.) 
 
¶9.  (SBU) As the MOF explained at its presentation to the Cabinet, 
SOEs can generally access funds through bond issuances without state 
guarantee and term loans; this short-term facility is intended to 
provide an additional channel for SOEs to access funds.  The 
facility will remain open for three years, although loan maturities 
may extend only for 18 months.  The interest rate charged will be 
based on the average fixed (6 month) time deposit rates of 
Thailand's four largest commercial banks (Bangkok Bank, Krung Thai 
Bank, Siam Commercial Bank, and Kasikorn Bank). 
 
JOHN