While short-term spending programmes are important to increase growth this year, sustainable development will depend on new medium- and long-term investment policies, according to local economists.

While the government's 115-billion-baht supplementary budget, tax incentives and other measures will help support the economy this year, growth was still likely to fall under the 2.5% target set by Prime Minister Abhisit Vejjajiva, they said.

Aekkachai Nittayagasetwat, an economist and dean at the Nida Business School, said the government should continue to invest in new infrastructure even though it will take several years to see the benefits.

"The government can break up big projects to be smaller and more easily initiated. Some could begin this year, creating jobs and helping confidence, even more so than the government's stimulus policies," he said.

Dr Aekkachai said the government needed to adopt a strategy to address the challenges faced by individual industries, such as agribusiness, exports or tourism.

He estimated that without a stimulus package, the economy this year could contract by -0.4% to -1.4%, with inflation turning negative at -1% and public debt at 37% of gross domestic product.

But with the supplementary budget, growth this year should range from 0.2% to 2%, with inflation at a modest 0.25% and public debt rising to 39.5% of GDP.

New tax measures announced this week to boost the property sector, small businesses and the tourism sector estimated to be worth 40 billion baht should boost growth by an additional half-point to 2.5% for 2009. Inflation is now projected at 1%, with public debt rising to 40% of GDP.

Dr Aekkachai, speaking at a conference yesterday organized by Nida and Siam City Research Institute, said the 154 billion baht in additional spending still left room for further borrowing and fiscal stimulus.

"If the global economy does not recover within three years, then the Thai economy would certainly be affected, save if the government eases restrictions on fiscal policies," he said.

Sukit Udomsirikul, a senior assistant manager at the institute, said three new light-rail projects are expected to begin construction in Bangkok if policies remained unchanged for the next several years.

He noted that under the government programmes, 300 billion baht in new investment would be made by listed companies, with the energy sector accounting for 59%, information and communications technology 12%, and construction materials, petrochemicals, property and other sectors the rest.

Ekniti Nitithanprapas, director of the macroeconomic analysis division for the Fiscal Policy Office, said the government could potentially borrow up to $200 million in foreign loans to supplement fiscal spending this year.

He said the government was also working with state-owned financial institutions to arrange loan guarantees for small businesses and entrepreneurs with commercial banks. The project was expected to be approved by the cabinet shortly.

Accelerating state spending and budget disbursals will be critical for supporting the economy this year, Mr Ekniti said.

State enterprises, for instance, typically have a disbursement rate of 70% for their investment budgets. The government this year hopes to raise spending to 85% of the total investment budget of 300 billion baht for local state enterprises.

"The government has to speed up spending, as we already see signs of the global recession in terms of falling exports and demand," Mr Ekniti said.

"The fourth quarter of 2008 and the first quarter of 2009 will be the worst for company earnings."

source : www.bangkokpost.com