VZCZCXRO1909
PP RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHBK #1547/01 1810040
ZNR UUUUU ZZH
P 300040Z JUN 09
FM AMEMBASSY BANGKOK
TO RUEHC/SECSTATE WASHDC PRIORITY 7372
RHEHNSC/NSC WASHINGTON DC PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
INFO RUEHCHI/AMCONSUL CHIANG MAI PRIORITY 6771
RUCNASE/ASEAN MEMBER COLLECTIVE PRIORITY
RUEHKO/AMEMBASSY TOKYO 1732
RUEHML/AMEMBASSY MANILA 0730

UNCLAS SECTION 01 OF 03 BANGKOK 001547 
 
STATE FOR EAP/MLS AND EB 
STATE PASS TO USTR 
TREASURY FOR OASIA 
SINGAPORE FOR FINATT COLLINS 
 
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) 
 
BANGKOK 00001547  001.2 OF 003 
 
 
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 
 
BANGKOK 00001547  002.2 OF 003 
 
 
---------------------- 
¶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 
 
BANGKOK 00001547  003.2 OF 003 
 
 
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