Thailand's prime minister clashes with central bank governor over $14 billion handout plan

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A plan to distribute signatures totaling $14bn has fueled a months-long dispute between Thailand's new leader and the country's central bank governor: whether Southeast Asia's second-largest economy is in crisis.

Prime Minister Shretha Thavisin said „people are suffering” and high interest rates are damaging the economy. He is urging parliament to approve a one-time payment of 10,000 baht ($280) to about 50 million low-income citizens through a digital wallet.

According to the Prime Minister, these handouts are needed to stimulate spending, support business and kick-start economic recovery – a cornerstone campaign promise for Shretha's party.

But Bank of Thailand Governor Setaput Suthivardnaruput argued there was „no crisis” and criticized the digital wallet and other „short-sighted” stimulus policies, instead of long-term structural changes such as improving productivity to support the country's aging population. .

„This has to be one of the few world leaders trying to convince people that the economy is worse than it is,” said Peter Mumford, head of Southeast Asia at the Eurasia Group.

„With the Prime Minister and the Central Bank at odds over the future of digital wallet policy, it's incredibly difficult for anyone trying to predict what happens to the economy.”

The controversy underscores Thailand's precarious position as it navigates its way out of the pandemic recession. The government, which has targeted 5 percent annual growth over the next four years, last month said the economy would expand only 1.8 percent in 2023, below the central bank's previous estimate of 2.5 to 3 percent.

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Growth lagged regional peers and consumer prices contracted for a fourth consecutive month, falling 1.1 percent in January, according to figures released on Monday. But the central bank, which holds its first rate-setting meeting of the year on Wednesday, has kept its policy rate at a decade-low of 2.5 percent, expecting tourism and spending to pick up this year.

For Shretha, a former real estate tycoon who also serves as finance minister, the digital wallet is central to her Phew Thai party's pitch to improve Thailand's fortunes after the party finished second in last year's election.

Bu Thai abandoned an expected alliance with runaway victors Move Forward over a vow to reform Thailand's military and monarchy. It struck a deal with the military-backed opposition that has ruled the country since a 2014 coup.

„Shretha came to power promising rapid economic growth, so to some extent the legitimacy of his government depends on delivering that – or luck,” Mumford said. „The digital wallet is his primary principle to achieve that.”

Most citizens agree that the economy is struggling. Almost 64 percent of recent respondents Census The National Development Administration said the economic crisis required immediate attention.

But the electronic wallet has been plagued by questions about how to make payments and its planned launch in February has been pushed to May or beyond.

Critics argue that a large financial injection would be irresponsible. Singaporean bank DBS estimates that financing digital manuals through borrowing will increase the government deficit by more than 5 percent in fiscal 2024.

Shretha on Tuesday reiterated his call for the central bank to cut rates, saying a 0.25 percentage point cut would not trigger inflation.

Siddharth Mathur, president of BNP Paribas, said the central bank – grappling with challenges such as household debt that soared to 90 percent of GDP last year – was „premature” in seeking to curb inflation. Macro strategy and emerging market research for Asia-Pacific.

The bank „decided to keep interest rates very accommodative and return to neutral . . . they believed the economy would get there,” he said. „But the economy may have taken a little longer . . . than the Bank of Thailand expected. So there was a bit of a disconnect.”

Analysts point to signs of recovery. Tourism, which accounts for about 12 percent of GDP, was hit hard by Covid-19 travel restrictions, but – thanks to new visa waivers – Chinese visitor numbers rebounded to 50 percent in December 2019, the highest since the pandemic. .

Exports also rose for the fifth straight month in December, albeit at a slower-than-expected pace.

Fitch Ratings forecasts growth of 3.8 percent in 2024, which could rise to 4.5 percent with e-wallet, analyst George Chu said.

Chu said Thailand's economy had „not fully recovered from the epidemiologic shock” but was „bottoming out now.” A digital wallet „can provide a short-term boost, but it doesn't address structural barriers, including an aging population,” he said.

Responding to questions from the Financial Times, Thailand's foreign ministry said it could not comment on the digital wallet due to delays in project implementation and potential changes.

Thai shares have fallen to three-year lows, and the baht is down 4.6 percent against the greenback this year.

Markets broadly „want to see government spending,” said K Bornpunnarath, head of equity research for Thailand at JP Morgan.

„Both monetary policy and government spending are key drivers of the economy,” Bornpunnarath added. The prime minister and central bank governor will „eventually find common ground”.

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