Read the following write-up and answer the questions given below:Economic MonitorShawn W. CrispinThailand, one of Asia’s fastest expanding econ¬omies in 2003, is showing signs of a slowdown. A series of economic shocks—including spik¬ing global oil prices, the re-emergence of bird flu and an unexpected new surge of non-performing loans in the banking system—have all hit business confidence.The surge in fuel imports drove Thailand’s import bill up 37% year on year in August, and sagging global demand plunged the trade balance into deficit and put new pressure on recently replenished national coffers. Oil imports now account for between 8% and 9% of Thailand’s GDP, nearly double the recent historic moving average of around 4.6% of GDP, according to Phatra Securities research.Those rising costs have hit manufacturing. Fac¬tory-usage rates fell from 71.3% to 66.7% between July and August. Production of electronics and food, two of Thailand’s largest export items, declined in line with slowing global demand and raw-materi¬als shortages, according to official statistics. A recent Bank of Thailand survey of top Thai executives showed that business confidence has fallen for five consecutive months to the end of August. The Stock Exchange of Thailand, which recently has rallied on foreign buying, is still down 12% so far this year, the worst performance in Asia.Policymakers have endeavored to buffer the economy from rising global fuel prices through sub-sidies, which some economists project could cost the government as much as 70 billion baht ($1.63 billion) if global prices remain at or near the current $52 per barrel for the remainder of this year. Sub¬sidies have so far helped keep domestic consump¬tion buoyant. Domestic consumption grew 3.2% year on year in August, a notable jump up from July’s 2.2% growth. New vehicle sales jumped in August in response to new excise-tax cuts.Some Bangkok-based economists doubt that the trend is sustainable. That’s because the government recently announced plans to scale back subsidies and allow fuel prices to float more freely in 2005. Kazi Matin, chief economist at the World Bank in Bangkok, estimates that rolling back subsidies will save 1% of Thailand’s GDP next year.Prime Minister Thaksin Shinawatra has said that his government’s infrastructure-spending plans will buffer the economy against external shocks and spark new domestic growth begin-ning in 2005. His cabinet recently increased the amount it wants to spend on new roads, rail-ways and government buildings from 1.1 tril¬lion baht to 1.7 trillion baht over the next five years. Some independent economists, however, question whether Thailand has that much fiscal room to manoeuvre.Economic officials say that part of the hoped-for 1.7 trillion baht will arise from private-sec¬tor sources and that new public investments will not significantly affect public debt, which is currently around 45% of GDP, according to official statistics.Independent economists contend that if pri¬vate firms do agree to help finance low-yielding infrastructure projects, they will require the entice¬ment of government guarantees on their invest¬ments, which by international accounting stan¬dards would appear as new liabilities on the national ledger. Questions:(10 Marks)(10 Marks)
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