IMF: Thailand can make further interest rate cuts if necessary

The International Monetary Fund (IMF) has given its blessing to the possibility of further reductions in the Thai interest rate, a source from the Ministry of Finance said.

Speaking after meeting with Finance Minister Somkid Chatusripitak on Wednesday, December 12, IMF officials insisted that the meeting was nothing out of the ordinary, but was simply to discuss the overall economic situation.

The officials also talked about the establishment of the Thai Asset Management Corporation (TAMC), and recommended that the corporation focus on efficiency and transparency, the source said.

At the same time, the officials suggested that openings remained for Thailand to make further interest rate cutbacks if necessary, while stressing that this was just a suggestion and that Thailand was under no obligation to follow the fund’s recommendations.

The finance minister has said in the past that Thailand would adopt a ‘wait and see’ approach to the interest rate, depending on interest rate trends in the US. (TNA)

Latest Fed rate cut will accelerate capital inflow, say bankers

The latest interest cut by the United States’ Federal Reserve (Fed) would contribute to the capital inflow since interest rates in Thailand are rather much higher than those in the US, according to local bankers.

The Fed last week decided to cut the short-term interest rate by 0.25% to 1.75% in a bid to stimulate the country’s economy.

Vinij Saeng-arun, foreign business expert at Krung Thai Bank, said the Fed rate cut, which is the 11th in one year, could benefit Thailand as local interest rates would stand around 2% higher than those in the US. The differential would attract more US investors to invest in Thailand.

“Foreign investors have apparently brought a lot of money into our country. This could be witnessed by the appreciation of the baht value to around 43 from 44 to the US dollar within a month.”

A source at a foreign commercial bank said the US needed to reduce the interest rate because the country’s economy remains sluggish.

Under the current circumstance, he added, the Bank of Thailand was likely to revise its financial policy after it had recently decided to increase short-term interest rates.

“The move to raise the short-term rates is not wrong. But that does not mean that it would be able to solve the macro-economic problem. To cope with the problem, many measures must be taken.

“At present, the problems that need to be solved urgently include the unemployment, the public debts of 2.8 trillion baht, and the debt burden of the Financial Institution Development Fund. Some of these problems could be solved by adopting the low-interest policy,” he said. (TNA)

Cabinet gives nod to tax measures to attract foreign investment

The cabinet last week approved tax measures to support the opening up of operational offices of foreign firms in Thailand, aimed at boosting foreign investment in the country, according to Deputy Prime Minister and Finance Minister Somkid Jatusripitak.

Somkid said that the approval, made at a weekly cabinet meeting, would increase Thailand’s competitiveness against Singapore and Malaysia as a regional relocation site for foreign investment projects.

The tax measures, proposed by the Ministry of Finance, would initially focus on the special reduction of corporate taxes for foreign firms opening their operational offices in Thailand, from a norm of 30% to only 10% annually; while the Ministry of Foreign Affairs would facilitate personnel of the foreign firms through visa procedures, he stated.

“The measures were approved just only one day before Prime Minister Thaksin Shinawatra and his entourage left for the United States for a week-long official visit, which is a good signal for international investors, as Thailand’s creditability in the international community is rather high. Officials of the International Monetary Fund (IMF) late the previous week expressed confidence in the Thai government’s economic measures, and endorsed many measures; suggesting only that the government push the measures into concrete practices,” he noted.

Meanwhile, Supharat Kawatanakul, director-general of the Revenue Department, said that foreign firms opening their operational offices in Thailand would be eligible for reduced corporate tax after they register under Thai laws with capital of at least Bt10 million, which is in line with international standards.

The operational offices were also required to have at least three affiliated firms in Thailand and other countries in the region with business activities to help Thailand earn more foreign exchange revenues, ranging from one third of their total revenues in the initial stages to 50% of their total revenues, he said.

The operational offices would also be given other tax incentives, namely the exemption of taxes to be levied from their dividend revenues, he said.

Supharat said that foreign personnel working for the operational offices would benefit as well in form of lower personal tax with options for them to pay a lower tax.

The operational offices would also be given other investment incentives from the Board of Investment of Thailand (BOI), he noted.

The Revenue Department head said that the cabinet also approved tax measures to boost the local real estate industry. (TNA)

Low interest rates spur investment in stock market

Investors are steadily turning towards the stock market following the decision by several commercial banks to slash their interest rates to historic lows.

A source from a leading brokerage house said that investors were increasingly turning to stocks which pay out high rates of dividends, with stocks on which dividends of more than five percent were paid out being the major focus of attention.

Shares in most companies that fit this latter category tend to be priced high and have traditionally been overlooked by investors.

However, the par value of the shares in some of these companies has recently changed, allowing small-scale investors to invest in order to reap the high dividend payments.

According to the Bank of Thailand, companies that paid out dividends of more than five percent last year included Chiang Mai Frozen Foods, Sea Fresh Industries, Unigas and Petrochemical, Thai Plant Oil, Thai President Foods, Thai Union Frozen Foods, Samakhi Insurance, Pathra Insurance, Sri Ayuddhaya Insurance, Union Pioneer and Amarin Publishing. (TNA)

Auto parts export likely to grow 20% next year

The country’s export of auto parts is expected to grow 20% next year because people prefer maintaining and repairing their existing vehicles to buying new ones on the back of the global economic slowdown, according to an industry executive.

Sukchai Luengmeekul, deputy secretary-general of the Association of Auto Parts Producers, said the sluggish world economy, which is expected to continue next year, would likely delay people’s decision to purchase new vehicles.

They would opt to have their vehicles maintained and repaired, resulting in an increased demand for spare parts including tires, batteries, and chokes.

At the same time, he said, the use of vehicles in neighboring countries, including Laos and Vietnam, had gradually increased. The import of auto parts by those countries from Thailand is projected to double annually.

Sukchai said he believed China’s entry into the World Trade Organization next year would have pros and cons for the Thai auto parts industry.

The advantage would be that local producers could buy raw materials from China at low costs and simultaneously expand their market in the country.

But with cheaper labor wages, China could become Thailand’s key rival for auto parts production.

Even so, Thailand has an edge over China as the former is used as a production and assembly base by many automakers. Vehicles made or assembled in the country are of high quality and satisfy customers’ needs while delivery of the products is very quick.

The export of auto components and equipment in the first nine months of this year totaled 8.84 billion baht and that of spare parts totaled 1.27 billion baht, an increase of 27.69% and 47.11% from those of the same period the previous year.

Engines, particularly diesel, enjoyed the most export value.

It is likely that the production of auto parts would increase late this year in line with the expected rise in vehicle sales in the fourth quarter. (TNA)

Economic volatility to dampen banks’ performance next year

The performance by commercial banks would not improve significantly next year because global economic volatility remains a deterrent, according to a leading banker.

Chatri Sophonpanich, chairman of Bangkok Bank, the country’s largest commercial bank, said the bank’s financial position is stronger now.

Even so, he was still concerned that the position would be affected by the fluctuation of the country’s economy and the global economy.

The United States and European Union economies, unless they are able to turn around next year, would definitely have a repercussion on Thailand’s exports and curb foreign investment in the country.

Chatri said the bank’s performance was unlikely to improve significantly unless the global economy shows a sign of recovery next year.

The bank still runs a high risk of experiencing non-performing loans because it has a lot of clients in the industrial, trade, export, import and service sectors.

Chatri said he wants to ask staff members at all levels to take greater caution in lending since the possible increase in NPLs would make it harder for the bank to maintain and stabilize its position.

“No matter what happen or whether the external situation will improve or worsen, the bank won’t succumb to it. We might have declining profits or experience losses, but we will survive,” he said. (TNA)

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