Thai DPM Kittiratt Shares His Vision of "Transformation of Thailand"

“Transformation of Thailand”

Thailand Focus 2012

H.E. Kittiratt Na-Ranong

Deputy Prime Minister and Minister of Finance

August 29, 2012

It is a privilege to be invited as the keynote speaker to distinguished participants from the global investment community.

I would like to thank the Stock Exchange of Thailand, Phatra Securities, and Bank of America Merrill Lynch for organizing this “Thailand Focus 2012” conference and for selecting to topic on the “Transformation of Thailand,” which I think is relevant and critical at the current stage of the Thai economic development.

As I believe many of you are quite familiar with Thailand, I will keep my speech brief and focus to the following points: Why do we need to transform? And how will we do it?

So first, why do need to transform?

Needless to say, the Thai economy has come a long way since the Asian Financial Crisis of 1997. In particular, our economy has become more robust with greater export diversification, wider range of industries, and well-functioning financial institutions supplemented by broader and deeper financial and capital markets.

Our economic stability is sound with low unemployment [0.7% in June 2012], moderate inflation [2.7% in July 2012], low public debt [42.6% in May 2012], ample international reserves [176.4 billion USD or 10 months of imports or 2.8 times short-term external debt], and low-leverage in banking sector [BIS Ratio = 15.1].

And because of these positive factors, the Thai economy was able to withstand recent turbulences from abroad as well as our own. Evidently, despite economic difficulty in Europe, our economy during the second quarter expanded by 4.2% per year.

Having recognized these achievements, the World Bank has recently upgraded us from “middle income country” to “upper middle income country." We also consistently ranked among the top 30 most competitive countries by IMD. Similarly, throughout the crises, Thailand persistently rated above investment grade with the current BBB+ by S&P, Baa1 by Moody’s, and BBB by Fitch. And most relevant to you all, our SET Index increased 65% during the past three years, making SET among the best performing stock exchanges in the world.

But we can do better.

With these achievements, our greatest risk is to become too complacent as there is no guarantee that the success formula that has worked in the past will continue to work in the future. With clouds of uncertainty still linger in advanced economies and with political turmoil in the Middle East and now in North China Sea, the world today is an uncharted territory that is full of threats for those not well prepared and full of opportunities for those who are ready. Therefore, to remain relevant in today's global economy, we must stand ready to adapt and re-invent ourselves to the changing environment.

In short, we must transform because we cannot count on past success and must therefore create platforms for future prosperity.

This brings us to my second point on “How should we transform the Thai economy?”

This government envisions the future of Thailand as a competitive, balanced, and inclusive economy.

Having recognized that competitiveness is the key to future prosperity, this government plans for the 2.27 trillion baht or 72 billion U.S. dollar investment over the next 7 years to upgrade our logistics infrastructure in all transportation modes. The plan includes inner-city road links, high-speed train networks, and urban mass transit systems, connecting Singapore to Kunming and Dawei to Vietnam. This improved connectivity not only would help reducing logistics costs but also enable Thailand to leap forth the full benefits from ASEAN Economic Community (AEC) in 2015.

Moreover, we are also investing to upgrade our water management infrastructure. In fact, His Majesty King Bhumibol Adulyadej has for a very long time emphasized the importance of water conservation and water managements as evident by many royal projects on the issue. To carry out His Majesty’s vision and to prevent the risk of flood once and for all, this government is now in the process of investing 350 billion baht or 11 billion U.S. dollar in our water management infrastructure such as water runways and river dams.

Besides infrastructure improvements, we need to create conducive environment for private sector to invest. In doing so, we recently reduce our corporate tax rate from 30% to 23% this year and to 20% next year. We hope that lowered corporate tax rate, together with other tax incentives for regional operating headquarters and international procurement centers, would make Thailand the investment destination of choice. We also offer tax and financial incentives to encourage small and medium enterprises to upgrade their productivity.

Moreover, we also plan to streamline our customs procedures. We are making substantive progress in our implementation of National and ASEAN Single Windows, which once done, will greatly facilitate trades through enhanced efficiency in customs and authorization processes.

With infrastructure improvement, competitive tax structure, and streamlined customs procedures, we hope to transform Thailand’s competitiveness the way that could help us overcome challenges and leap forth the benefits in the ever changing global environment.

In addition to competitiveness, we also envisioned the Thai economy to be balanced and inclusive. In particular, as global growth remains fragile, we can no longer rely on exports as the only growth driver. As such, we seek to shift the balance toward a stronger domestic sector that can help sheltering us from global storm.

As such, this administration has put in place measures to enhance the quality of life and promote economic inclusiveness. These includes measures to enhance low earners’ income such as higher stipends for the elders, higher minimum wage, and rice pledging scheme; measures to reduce cost of living such as subsidized utilities and transportation costs and tax benefits for first-home and first-car purchases; and measures to manage household debts such as debt moratorium for qualified farmers and low-income earners.

Before ending let me now touch on the issue of public debt sustainability. It is important that I explain Thailand’s situation clearly given investors’ attention on the issue after the European experience. As for Thailand, the current level of public debt is manageable at 42.5 percent of GDP. It is well within our Fiscal Sustainability Framework of 60 percent. Given the still weak prospect of global growth, our fiscal policy will continue to support the economy with planned fiscal deficit of 400 billion baht this fiscal year ending September 2012 and a lower fiscal deficit of 300 billion baht the next fiscal year. With the said infrastructure investments, the Ministry of Finance projects that the public debt level will still be within our Fiscal Sustainability Framework. I would like to give you assurance that as while we have ambitious plan to lay foundation for future growth, we never neglect economic stability.

With enhanced competitiveness through infrastructure improvement and with a more balanced and inclusive growth, I believe the prospect for the Thai economy is bright amidst the clouds of uncertainty in the global economy. Though this task ahead of us is challenging, I believe that with the combined experiences of speakers and participants, you will see many windows of opportunity here. Let us now work towards the stronger and better future of Thailand.

Thank you very much for your attention.

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