Lavaron Sangsnit, the director general for the fiscal policy office, said today (August 8) that the package aims to boost inbound tourism, and promote travel within the country by both Thais and foreign tourists.

The stimulus will also support farmers, small businesses and middle income earners, he said.

The package comes after a sharp slowdown in economic growth to 2.8 per cent in the first quarter.

The government is also worried that a stronger baht and weaker Chinese yuan would adversely affect the number of Chinese tourists visiting Thailand.

The Bank of Thailand on Wednesday cut its policy rate by 25 basis points to 1.5 per cent, in a move intended to drive the economy, he said.

“So far 11 of the 17 APAC banking systems that we cover have made to switch to the new regime, and our analysis of 36 major rated banks in the region confirms our earlier view that the switch has led to a mild increase in credit reserves,” noted Eugene Tarzimanov, a Moody’s VP and Senior Credit Officer. “However, our analysis also unveils significant variations in reporting practices, with some banks not meeting the disclosure object of the standard.”

While all banks in Moody’s sample disclose the three credit stages of loans in their annual reports, as well as the related expected credit losses, most have weak disclosures on the inputs and criteria they use for Stage 2 and Stage 3 classifications and on the rules they use for moving assets across stages, the report noted.

“From a credit perspective, asset movements between Stages 1 and 2 have a significant impact on expected credit losses, while asset movements from Stage 2 to 3 affect problem loan metrics” Senior Accounting Analyst Maria Mazilu explained.

Moody’s says the major banks in Hong Kong are best-in-class because they provide far more granular information on their expected credit loss models, including their sensitivity to different scenarios.

The International Financial Reporting Standard 9 (IFRS, or local equivalent) replaces the previous International Accounting Standard 39, and changes the way banks report the credit quality of debt-like assets, how they create provisions against credit losses, and how they classify and measure financial assets.

The board voted five to two to cut the key rate.

“Thailand’s policy rate cut is unexpected as usually the MPC would gradually communicate on the need to ease monetary policy in a previous statement,” he said. “However, in the previous meeting, the BOT stood firm on the issue of financial stability, such as high household debt, search for yield behaviour and underpricing of risk. What led to the change of mind?” he posed.

Amornthep said that the BOT appeared to be firm in its decision to hike the policy rate by 25 basis points in December last year, claiming stable growth, rising inflation rate and building up policy space. “However, since the beginning of the year, there are three factors that could have induced the MPC to reverse its previous position. First, the Thai economy appeared to be deteriorating from weakening global demand, causing Thai exports to shrink. When exports dropped, investors cut down production capacity and lowered overtime payment to staff, deterring purchasing power.

“Second, Thailand’s inflation rate has been falling below the BOT’s lower bound target of 1 per cent. The BOT may claim that the fall of inflation rate was mainly due to declining oil prices, but declining purchasing power may somewhat result in falling inflation rate.

“Third, the baht has been strengthening against the US dollar and regional peers, deterring export competitiveness. The [US] Fed, and other central banks in the region have cut their policy rates and sent signal for more rate cuts to stimulate growth, implying weakening of currencies to boost exports during the time of trade war.”

Amornthep said Thailand has been a victim of both trade and currency wars as exports shrink and the baht strengthens against others.

“At first, I thought that the BOT may be able to tolerate this situation for a couple of months or at least until the end of the year while waiting for third-quarter GDP data. However, Trump’s tariff of 10 per cent on US$300 billion worth of imports from China may have been the signal to prevent further decline in exports and a possible weakening economy in the second half of the year. Trump’s tariffs may have been the last straw for the BOT to say that its tolerance is enough,” he said.

Amornthep said that he would expect more cuts from the BOT. The conditions for a rate cut are, for example, escalating trade war, continual strengthening of the baht against peers, declining inflation rate and weakening economy.

“I do not think that the BOT would cut the rate soon for fear of losing its policy space. It may apply other measures to stimulate growth or weaken the baht for the time being, such as easing measures on loans or encouraging capital outflows,” Amornthep said.

Meanwhile, the BOT may wait for fiscal stimulus from the new government to boost demand among low-income households or provide tax incentive measures for the middle-class to increase their spending, he added, noting that a delayed budget process may leave the new government short of funds to stimulate growth. Thus, the BOT may take a wait-and-see stance for now to evaluate the third quarter GDP data released in November. If there is a sign of improving economy or declining risk from the trade war, the BOT may stay put on the rate. “However, I would think that the economy may not be able to pick up as strongly as expected earlier and may require further cut to stimulate growth. I would expect one more cut in December this year,” he said.

Will the BOT relax on loan supervision?

“I do not think that the BOT would relax its efforts to curb the rise of household debt and mortgage NPLs [non-performing loans]. It may not reverse its policy to lower loan-to-value for housing loans. Going forward, the BOT may continue monitoring loan provision by commercial banks. Further, it may go ahead with a new policy to cap debt-service ratio of borrowers. Despite these regulations, the BOT may be content with financial stability and may apply rate cuts further if necessary with little worry about the side-effects of rate cut that could affect financial stability,” said Amonthep.

He said BOT’s rate cut on Wednesday is an attempt by the central bank to stimulate growth and may aim to further weaken the baht against peers. However, the economy may not accelerate fast enough as weakening global demand will affect Thai exports. The government may have to pursue stimulus measures to raise purchasing power and distribute income to low-income households.

Meanwhile, the BOT may monitor the effectiveness of rate cut whether it could help increase loan growth or not. “The door for rate cuts has just opened. Let’s wait and see how it goes and let’s hope that Thailand does not become a victim of both trade and currency wars.

The development of e-commerce and other forms of digital trade has led to the growth of the service sector both in developed and developing economies. Hence, the barriers to trade in services will pose a challenge to the growth of Asean’s digital trade industry, Janos Ferencz, Trade Policy Analyst for OECD (France), said.

Ferencz was speaking on Wednesday (August 7) during the CLMVT (Cambodia, Laos, Myanmar, Vietnam, Thailand) Cross-border Digital Trade seminar organised by the Commerce Ministry’s Trade Strategy and Policy Office.

Cross-border barriers to services trade in regions such as Southeast Asia involve unnecessary regulations between countries restricting the cross-border movement of different types of services, he explained.

To address this issue, he suggested, governments in the region should come together and find ways to deregulate these barriers to enhance the regional service industry.

He added that Thailand needed to have a broader stakeholder engagement when discussing policies and trade regulations so that concerns of the private sector about the regulatory challenges to digital trade could be addressed.

The Commerce Ministry has announced plans to meet with private sector representatives such as the Federation of Thai Industries, the Thai Chamber of Commerce, and the Thai Bankers’ Association on August 14.

Commerce Minister Jurin Laksanawisit said earlier this week that the meetings involve a brainstorming session on the potential solutions to circumvent the negative impacts of the US-China trade war and build a consensus with the private sector on how to mobilise the economy.

Ferencz suggested that trade officials should focus on addressing regulatory challenges stemming from digital trade when negotiating free trade agreements.

Thailand, as the chair of this year’s Asean meetings, has announced that negotiations of the 16-country Regional Comprehensive Economic Partnership (RCEP) will be concluded by the end of this year and will likely be signed in mid-2020.

The RCEP negotiations cover 20 chapters in total, including a chapter on e-commerce. However, the details of the e-commerce chapter are being negotiated and have not been made public.

Ferencz stated that digital trade issues which trade deals should address are electronic authentication and paperless trade as well as cross-border private data protection.

Some 7,500 international delegates are expected to attend the four-day event, generating revenue of up to Bt640 million (US$20.7 million).

TCEB President Chiruit Isarangkun Na Ayuthaya says the 2019 IDA Annual Congress is the largest-ever Chinese convention to be organised in Thailand.

“TCEB is delighted to welcome the 2019 IDA Annual Congress to Thailand. We won this event in 2017 following an inspection trip to Thailand by the IDA Committee. We then attended the 2018 event in Yunnan last year to extend an invitation to their delegates to attend the 2019 edition in Thailand.

“This highlights the importance of the Chinese market to TCEB and Thailand and helps raise the profile of Thailand as a conference destination. Thailand has a good record for hosting mega-size convention every year and the 2019 IDA Annual Congress will be a trademark of such a large-scale event for the Kingdom, reiterating the country’s readiness and ability to host large and important international MICE events,” he added.

TCEB’s policy of targeting and supporting events has helped make Thailand one of Asia’s top MICE destinations. TCEB helps facilitates the smooth and successful organisation of business events by providing support schemes, introducing and connecting with local suppliers, in addition to providing fast track MICE immigration service to VIP delegates.

The IDA Annual Meeting is held in conjunction with the Worldwide Chinese Life Insurance Congress (WCLIC) biennially. All of the worldwide Chinese insurance and financial professionals and top management join this annual meeting, which has become the signature event of the industry. It has firmly enabled the worldwide Chinese financial and issuance sector to compete with the usually-focused-on-English industry on the international stage. After many years of operation, management and accumulation, IDA is poised to exert its considerable influence in the global insurance field.

Kai Tu, Chairman of the 2019 IDA Annual Meeting, stated: “After an extensive search, we are pleased to select Bangkok as the location for our annual IDA conference, especially as we mark the 20th anniversary since IDA commenced in 1998. In fact, this is the second time that the IDA conference will be taking place in Thailand, and we are grateful for TCEB’s continued support and collaboration in helping us to bring the conference to the lovely city of Bangkok.”

“Nearly 8,000 delegates and 300 senior executives from 17 countries, in addition to more than 200 leading financial services and insurance institutions will attend our annual meeting, which aims to facilitate further learning and discussions about our industry. We hope the four-day intensive meetings, against the backdrop of Thailand’s rich cultural heritage, local attractions and gracious hospitality, will make this a memorable experience for all delegates,” he continued.

China currently ranks as the top short haul MICE market to Thailand for the fiscal years of 2015 to 2018. During 2018 Thailand welcomed a total of 215,098 MICE delegates from China, representing a 95.57 per cent increase over 2015 (at 109,987).

Of the total MICE travellers from China, the convention-specific delegates to Thailand rank in the top three. Since 2015, the number of convention delegates from China has increased from 16,216 to 53,789 delegates in 2018, representing a 231-per-cent growth in just a three-year period.

As well as the 2019 IDA Annual Congress, conventions from China supported by TCEB have included: the New Normalization’ Assisting the New Pattern of Asia Pacific Economic Development-2015 China International Economic and Trade Regionalization Development Summit, from January 19-25, 2015 for 200 delegates; the 3rd Annual World Congress of Smart Materials (WCSM2017), from October 16-18, 2017 for 600 delegates; and the 14th World Congress of Chinese Medicine (WCCM 2017), from March 21-22 2017 for 800 delegates.

The MPC cut the interest rate by 25 basis points to 1.5 per cent.

Of the seven-member committee, five voted for the cut while two voted to maintain the rate at 1.75 per cent.

The baht has been one of the strongest currencies in the region while the Chinese yuan has been weakening.

The baht and Thai government bonds are considered by foreign investors as safe-haven. The baht ranks 15th among the strongest currencies.

The Thai currency has appreciated against the US dollar by about 5 per cent since early this year while it has gained 8 per cent against the yuan.

Exporters and even overseas Thai workers have recently expressed worries about the stronger baht.

Economists had expected the MPC to maintain the policy rate at today’s meeting.

Kobsidthi Silpachai, the head of capital markets research at Kasikornbank, said the central bank aims to prevent further appreciation of the baht and shore up the economy.

After the news of a rate cut, the baht immediately weakened to Bt30.89 per dollar from 30.75 before the rate cut, then it rebounded to Bt30.82 at around 3pm.

“It may not help much if other central banks follow suit and it could lead to competitive easing, comparable with the competitive devaluation during the 1997 financial crisis,” Kobsidthi said.

New Zealand’s central bank cut its rate to 1 per cent from 1.5 per cent on Wednesday morning while India’s central bank also cut its rate by 35 basis points from 5.75 per cent to 5.40 per cent.

“We suspect that the central bank’s decision to cut the policy rate to 1.5 per cent today is a result of the strong baht,” said Tim Leelahaphan, an economist with Standard Chartered Bank.

“However, in a similar way to the Bank of Thailand’s past measures to prevent the baht from appreciating further, it may take some time for the lowering of the rate to have an impact on the baht’s strength.”

He pointed out that, also on Wednesday, the New Zealand and Indian central banks cut their interest rates, deepening the trend of global monetary easing after the US Federal Reserve reduced its benchmark rate on July 31.

These actions put further pressure on the baht to appreciate, giving the Bank of Thailand an incentive to lower interest rates in an attempt to keep the baht’s strength in line with that of the currencies of the country’s neighbours, he said.

Furthermore, the central bank’s decision to lower the policy rate may reflect an attempt at policy synchronisation with the government’s efforts to stimulate consumer spending, he said, referring to the speculation that the new government will implement economic stimulus measures to boost such spending before the year’s end.

These factors, coupled with the volatile US dollar value, have added pressure to the already-slowing global economy, which will not facilitate recovery of Thailand’s exports in the second half of the year.

Thai economic indicators in the first half showed weak signals in both export and domestic consumption, it added.

Due to this gloomy outlook, Thailand needs to boost its domestic consumption, especially short-term measures from the government to alleviate the drought and to regain private sector confidence.

The joint committee said it would keep a closer watch on the situation but it has maintained GDP growth forecast this year in the range of 2.9 to 3.3 per cent.

It has also maintained its export growth forecast this year at between minus 1 per cent and 1 per cent growth.

Thailand’s GDP expanded 4.1 per cent last year, while exports grew 6.9 per cent.

The measures include an agricultural products price guarantee programme, investigations to ensure that prices of products and service price are fair, a boost in the country’s exports, and speeding up all trade negotiations now underway.

“Palm oil will be the first agriculture product, to be discussed today (August 7) between representatives of the government, private sector and farmers. The discussions will include the price and a way to guarantee palm oil prices, and we will then propose the plan to Thailand Palm Oil Board to consider before we make a proposal to the cabinet approve in the next step,” Jurin told a Wednesday press conference.

He added that a price guarantee for agricultural products will focus on five economic crops – palm oil, rice, rubber, corn and cassava. After the palm oil meeting today, Friday (August 9) will see a meeting between all parties to discuss rubber products, including representatives of the Agriculture and Cooperatives Ministry, private sector and farmers.

“We cannot now discuss the budget to guarantee a price programme for agricultural products – that will depend on the discussion,” he said.

Meanwhile, the ministry will continue to manage and investigate the prices of products in the market, to ensure a fair price is offered for both products and services for producers and consumers.

Boosting the country’s export is also a top first priority in order to boost the country’s economy through speeding up exports for both products and services.

“We will expand the country’s exports to the countries we now export to, open new export markets, improve our export to countries that are now non-active countries for our export products, and also improve border trade with neighbouring countries,” he said.

However, he did not say whether the ministry will revise the country’s export growth or in a  period when the baht is appreciating against the US Dollar and Yuan.

“We will be meeting with all of the relate parties about the export problem, such as Thai National Shippers’ Council, Board of Trade of Thailand, and so on, on August 14. Then we will know if we can revise our export target or not. However, at this time we will maintain our export target at 3 per cent,” he said.

The minister has continued efforts to speed up all trade negotiations aiming for a completion by the end of this year, including free-trade agreement with Turkey, EU, UK, Pakistan, and Sri Lanka, as well as the Regional Comprehensive Economic Partnership (RCEP), the Asean plus six, and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

Next in the six strategies of the ministry is the continued improvement of the E-filing system, aimed to improve the ministry’s services for all of parties who have contracts with the ministry.

The next action is to accelerate the registration of intellectual property and Geographical Indications both domestically and overseas. This will improve the value added to products and services that are owned by Thai people.

Another priority is to drive the country toward a modern economy through advances in digital, innovation, bio-technology among others, to support the country’s startups, OTOP products, and franchise business so that they are able to boost the country’s economy, he said.

The ministry also plans to develop the country’s smart traditional retail shop by supporting all traditional retail shop to improve their shop design and systems in order to advance their business together with the ministry’s Blue Flag shop concept.

“We will set up a master plan for how many shop we want to develop by the end of this year and the next year. This will help lower-income people to have a business and also support traditional shops in the communities to compete with modern trade in the market,” he said.

Next is to promote and improve the country’s service sector standards, including for restaurants, spas, movies and ageing business.

In order to drive all of the ministry’s strategies toward achieve the individual goals, the last strategy is for the ministry set up a system to collaborate with all parties to drive the strategy. This would be done by meeting with all of the ministry’s departments every month, meetings between the ministry and private sector to drive the country’s economy. As well there must be collaboration between all parties to consider the product and price guarantee under a participatory meeting between the government, private sector and farmers. That would set he price and the way to implement it, and also push commercial ambassadors to work together with the private sector to boost the country’s export market, he said.

Two members voted to maintain the policy rate at 1.75 per cent, according to the committee’s secretary, Titanun Mallikamas.

In deliberating their policy decision, the committee assessed that the Thai economy would expand at a lower rate than previously assessed due to a contraction in merchandise exports, which has started to affect domestic demand.

Inflation was projected to be lower than the lower bound of the inflation target. Overall financial conditions remained accommodative.

Financial stability risks had already been addressed to some extent, although there remained pockets of risks that warranted monitoring.

A more accommodative monetary policy stance would contribute to

the continuation of economic growth and should support the rise of headline inflation toward target. Most members thus voted to cut the policy rate at this meeting.

Nevertheless, two members viewed the policy rate cut as under the already accommodative monetary policy and might not lend additional support to economic growth, compared with the potentially higher financial stability risks. Moreover, there remains a need to preserve policy space, the dissenting members argued.

He said that following discussions with the Office of the National Economic and Social Development Council, THAI would need to buy more aircraft to raise its competitiveness with rival airlines in spite of its current losses. “This is because passengers today tend to prefer flying in new aircraft for comfort and value-for-money reasons. If THAI cannot compete in providing such service, the airline will suffer more losses,” he said.

Regarding the source of investment capital for the purchase of new aircraft, Thaworn said raising the registered capital should be most appropriate as it will not impact the country’s financial status. Seeking loans is seen as difficult as THAI has been making losses.

Regarding the five units of retired aircraft A340-500 and A340-600, which are parked and ready for sale, he suggested that THAI should fly such aircraft on European routes instead, as it will create more value for the airline.

Thaworn said that he also wants THAI to speed up generation of revenue, especially from the sale of tickets through agents.

“I have ordered THAI to reorganise its ticket sales through all agents, who account for 75 per cent of all ticket sales but are not quite efficient. Some agents buy tickets in bulk but later return the unsold tickets to the airline.

“Due to this lack of efficiency, THAI is burdened with this expense and a lost opportunity to find more revenue,” said Thaworn.

Thaworn said that THAI has to adjust its rules with new agents, such as giving them the exact timeframe for selling the tickets. Agents who cannot sell tickets as targeted should be punished with a fine or blacklisting, or losing their right to be agents. The airline also should find other potential channels to increase ticket sales, such as through online ticketing and application, as these channels account for only 25 per cent of total ticket sales.

Thaworn said that he also wants Thai Smile Airways to revise and clarify its positioning in the market.

“In my personal view, Thai Smile should reposition itself as a low-cost airline, from the current ‘light premium’, which is in the middle between premium and low-cost airlines. From my own analysis, the number of seats Thai Smile offers is not different from that of low-cost airlines, but its tickets are priced higher. So it cannot compete with low-cost airlines,” Thaworn said.

“Thai Smile should adjust its positioning as a ‘low-cost’ carrier and reduce some services to make the tickets cheaper. Most low-cost airlines will also fly short-distance routes and require fewer services,” he added.