core sector communique

Statement of an IMF Mission at the Conclusion of the 2010 Article IV Consultations with Thailand

July 16, 2010

The following statement was issued today in Bangkok after the conclusion of an International Monetary Fund (IMF) staff mission to Thailand for the 2010 Article IV Consultations:

“Over the past year, the Thai economy has come through two difficult tests: a global crisis, then a round of domestic political turmoil. Its performance has been impressive, with growth rebounding after each setback. Two factors contributed to this robust performance. First, Thailand’s sound economic framework, which meant that the country entered the crisis from a position of strength, on all sides—banks, corporate, and public; Second, the policy response, which was one of the most forceful in the region. The government stimulus packages sustained domestic demand, putting spending power especially in the hands of the most vulnerable. The sharp reductions in the policy rate provided for an appropriately accommodative monetary stance.

“For 2010, we expect real GDP to expand by 7-8 percent, as the economy benefits from some further normalization in investment and consumption, supported by continued monetary and fiscal support. With the global economy projected to expand by a healthy 4½ percent, this year and next, Thailand should be able to grow at around 4 percent in 2011, with low inflation. That said, there are downside risks: the strains in Europe could intensify and undermine the global recovery while domestic political uncertainty could weigh on demand.

“With the economy normalizing, we welcome the Monetary Policy Committee’s decision to start the process of normalizing interest rates, increasing the policy rate by 25 basis points to 1½ percent on July 14.

“The medium-term task is to ensure that Thailand enjoys rapid, sustained growth. This will require boosting investment. To do this, structural reforms will be crucial. The mission would like to highlight two elements: building up the country’s infrastructure and developing its financial sector. But raising spending on infrastructure, while also increasing social spending, will require additional budgetary resources. This may require increasing revenue. On the financial side, the mission endorses the Capital Markets Development Master Plan and the Financial Sector Master Plan II, both of which will spur development by injecting more competition into the financial sector. Under a baseline scenario, we expect these efforts will contribute to growth of 4-5 percent over the medium term, with low inflation.”