While the Thai economy (
THD
,
quote
) continues to thrive despite many suffering in the wake of the
global economic slowdown, concerns are starting to surface over the
sustainability of the country's growth.
[caption id="attachment_73000" align="alignright" width="300"
caption="Unsurprisingly, the tourism industry in Thailand remains
pretty consistent"]
[/caption]
The Thai economy has flourished this year
largely due to government-backed spending designed to rebuild the
infrastructure ruined during the disastrous floods of the previous
year. This public spending growth in the Thai economy has allowed
the economy to maintain a positive rate of growth in the
neighborhood of 4% in spite of weakening global demand for the
country's low-to-mid-end technology exports.
However, voices in the private sector are starting to articulate
concerns over the long-term feasibility of the government's extant
economic strategy. For example,
Bangkok Bank claimed that loan-fueled growth could
cause a euro zone-esque debt crisis
.
Bangkok Bank is not necessarily concerned with the government
driving economic growth in the short-to-medium term; rather, the
firm is against this growth stemming primarily from
government-loans. The bank would rather see the government raise
taxes in order to subsidize public spending.
While concern over the debt in the Thai economy is reasonable,
the fact remains that a European Union style banking crisis remains
highly unlikely in Thailand because of the composition of the two
entities' respective economies.
Because Thailand is a (relatively) cohesive political, monetary,
and fiscal union, Thailand's central bank and government have a
multitude of options to assuage any debt-related problems that may
arise. On the other hand, while debt and competitivity problems
surely played a large hand in Europe's current problems, it's the
euro zone's lack of a fiscal union and effective policy creation
apparatus that has caused this problem to fester.
Because of the comparative flexibility of the Thai economy,
notions of a European Union-style debt crisis are largely
misleading. That said, it's important for investors to keep an eye
on Thai debt. If it starts to increase sharply, while not being
calamitous it could hurt the economy.
While the Thai central bank will likely keep interest rates
somewhat low, investors should look for a gradual shift towards
some increased taxation and hope that the country can avoid a
premature rate cut that could make the country's debt situation
more precarious.
