The National Economic and Social Development Board (NESDB) reviewed the performance of the Thai economy in 1995 and identified important policy issues for economic management in 1996. In 1995, the Thai economy encountered many unexpected events since the beginning of the year such as the Peso Crisis and the fluctuation of exchange rate, especially between the US dollar and the Japanese yen. In the second half of the year, severe floods caused some damages to production, residential assets and public utilities. Despite these impediments, the Thai economy satisfactorily grew by 8.6 percent, slowing down from the 8.7 percent growth rate recorded in the previous year. The high growth rate induced the current account deficit, equivalent to 7.3 percent of GDP. In addition, the prices of food which increased in line with the world prices, and the effects of floods pushed up the inflation rate to 5.8 percent. As a result, the maintenance of economic stability will become the major thrust of economic policy in 1996.
The report is summarised in four parts : 1) the world economy in 1995 and trend in 1996 ; 2) Thai economy in 1995 ; 3) the prospect of the economy in 1996 and 4) important economic policies in 1996.
1. The World Economy in 1995 and Trend in 1996.
The world economy in 1995 showed only slight improvement, recording a growth rate of 3.7 percent, compared to 3.6 percent in the previous year. Both the industrial and the Asian economies showed slower pace of economic growth. The world trade continued to slow down from the expansion rate of 8.7 percent in 1994 to 7.9 percent in 1995, however, this is a relatively high rate, given the average growth of the past decade.
Industrial economies. The expansion of industrial economies slowed down from the growth rate of 3.1 percent in 1994 to 2.5 percent in 1995 due to the exchange rate volatility among major currencies during the first half of the year, a strict monetary policy in the US, and a poor economic performance of Japan. During the last six months, the US, Japan, and Germany started to relax their monetary policies in order to stimulate the economies : thus it is expected that their economic growths in 1995 are likely to be 2.9, 0.4 and 2.6 percent with the inflation rate of 2.0, -0.3 and 2.1 percent respectively.
Asian economies. Asia was still the most active region in the world in 1995. The high growth rate during the first half of the year was assisted by the realignment of exchange rates among major currencies which turned out to benefit exports from this region, especially those of China, Korea and Taiwan. Other sitmuli are infrastructure investment and industrial expansion, but rapid economic growth put pressures on economic stability of some countries in this region. In 1995, China continued to achieve the highest growth, followed by South Korea, Malaysia, Thailand and Singapore (10.0, 9.3, 8.7, 8.6 and 8.5 percent, compared to 11.8, 8.4, 8.7 and 10.1 percent in 1994 respectively).
World economic trend in 1996. The world economy is expected to expand by 4.1 percent, up from 3.7 percent in 1995. The industrial economies is likely to continue to slow down from the growth rate of 2.5 percent in 1995 to 2.4 percent, while the growth of developing countries will go up from 6.0 percent in the previous year to 6.3 percent, thanks to the pursuance of the economic liberalisation and restructuring policies. The growth of world trade is foreseen to drop to 6.5 percent in 1996, but still high enough to stimulate the world economy.
2. Thai Economy in 1995.
2.1 Thai economy slowed down slightly.
The Thai economy expanded by 8.6 percent and the inflation rate increased to 5.8 percent in 1995. The growth rate reduced from 8.7 percent in 1994, and fell short of the 8.8 percent growth rate expected at the beginning of the year. However, the economy has been still in the continuous expansion phase since 1991. In order to prevent overheating which might threaten the economic stability, strict monetary measures have been pursued from the beginning of the year to slow down economic expansion through high interest rate and stricter credit control for non-productive activities. The tight monetary policy has begun to show its effect on private spending, however, exports and private investment were still on the rise, thus greatly contributing to satisfactory economic performance in 1995.
Major factors for economic slow-down :
(1) Public investment. The budget disbursement rate was slightly less than last year, 79.6 percent of the budget was disbursed in the FY 1995 (Oct. 1994-Sept. 1995), compared to 81 percent in the previous fiscal year. Delayed approval of the FY 1996 budget took place, following the change of government. This, however, lowered public spending on new projects which may be beneficial in the short run, but may cause a delay in necessary infrastructure projects already approved by the government.
(2) Perpetual flooding. Perpetual inundation from July to November caused some damages to the agricultural production such that its output in 1995 is likely to expand by three percent, compared to 3.5 percent expected earlier. It is observed that the damaged areas were mostly in the Central and Northern regions while the dry areas of the Northeast got unusual plenty of water and would produce higher output than ever.
(3) Decreasing private consumption. Private consumption expanded by 7.9 percent, compared to 8.2 percent in the previous year, since the purchasing power of farmers dropped according to the flood damages while that of urban investors were constrained by the lacklustre stock market.
(4) Volatility in global money market. The Peso Crisis temporarily caused a tight domestic money market since the beginning of the year. The reinvigorated stock markets in New York and Tokyo caused short- term foreign capital to flow out of Asian markets, thus resulting in tighter money market situation until the end of the year.
Foctors contributing to the high economic growth :
(1) Higher than exports. The exports this year were exceptionally healthy, especially the agricultural commodities and processed products, for the prices in the world market were still high and many suppliers in Asian region were affected by floods. Despite the fluctuation of major currencies in the world market, the Thai exports during the first ten months increased by 25.4 percent. During the first eight months, the Thai exports to the Southeast Asian and European markets grew by 31.4 and 20.5 percent respectively. Total exports for the entire year of 1995 is expected to reach as high as Baht 1.37 trillion, or equivalent to the growth rate of 22.5 percent on average.
(2) Strong private investment. Expansion of production capacity led to relatively high capital imports. Import of capital and intermediate goods and raw materials (8 months) increased by 23.9 percent and 31.8 percent respectively. The private investment index (9 months) increased by 14.9 percent in contrast to the reduction of 9.1 percent during the same period of last year. The number of application for BOI investment privileges (10 months) reduced but the capital of those projects, Baht 822.3 billion. rose by 86.3 percent. The amount of capital belonging to projects which applied for investment incentives in the investment promotion zone 3 increased by 110.9 percent.
2.2 The strength of economic stability weakened.
Economic stability in 1995 might be weakened by increasing current account deficit and rising domestic price index. However, the fiscal and monetary stability are still an anchor of stability for the entire economic system of the kingdom.
(1) Widening trade and current account deficits. Although exports during the first ten months expanded by 25.4 percent, the imports increased by 31.5 percent, resulting in the trade deficit of Baht 299.1 billion or an increase by 61.7 percent. Majority of imports was industrial machinery and basic production inputs, especially chemicals, steels, and minerals. There was also special imports of commercial aeroplanes and military equipment, totalling Baht 44 billion. Taking into account the tight monetary policy and the flood damages which slowed down imports during the third and fourth quarters, the expected trade deficit for the entire year would be Baht 340 billion (higher than previously expected at Baht 270 billion). In the services account, the tourist incomes increased by 22.3 percent compared to 13.6 percent in the previous year : thus the services balance is expected to be in surplus of Baht 40 billion, an impressive increase compared to Baht 23.6 billion in 1994. This surplus compensated the deficit in the trade account, resulting in the current account deficit of Baht 300 billion, or 7.3 percent of GDP, up from 5.6 percent of last year and higher than the previous projection of 6.1 percent.
(2) Rising Inflation. Inflation in 1995 is likely to reach 5.8 percent, up from 5.1 percent in 1994. During the first 11 months, the rise in prices was led by the food category which showed an increase of 7.8 percent, compared to 6.9 percent during the same period of last year, while the non-food category rose 4.2 percent, slightly higher than the 3.8 percent expansion recorded last year. Main factors supporting high inflation were : 1) the continued high prices of agricultural products in the world market ; 2) the high cost of food production ; and 3) the effects of floods. However, the government administered several measures to reduce inflation such as reducing import tariffs and increasing import quotas for raw material of animal feeds, and the monetary measures to discourage lending to non-productive activities and speculations. The full effects of these measures are expected in 1996.
(3) Fiscal and monetary stability. The fiscal surplus proceeds to the eighth consecutive years. The government revenue for the FY 1995 was Baht 760,755 million, increased by 16.2 percent from the previous year. The disbursement rate was lower than last year, 79.6 percent compared with 81 percent in 1994 : thus the government expenditures increased by merely 10.5 percent and the budgetary surplus was recorded at Baht 117,472 million (Baht 72,054 million in 1994). The off-budget items showed a deficit of Baht 4,935 million, resulting in the government cash surplus of Baht 112,537 million and the cash at the treasury at the end of September of Baht 300,832 million. Moreover, the public foreign-debt service ratio dropped to 3.8 percent and foreign reserve at the end of October was US$ 35,731 million, or equivalent to 6.3 months of import value. These are some evidences of the strong fiscal and monetary stability in 1995.
3. The Prospect of the Thai Economy in 1996.
The economy may continue to slow down. The Thai economy is anticipated to grow by 8.5 percent, down from 8.6 percent in 1995. Agricultural and construction sectors are likely to expand while the manufacturing and service sectors poise to slow down. Economic stability is expected to improve in both aspects, namely the current account and inflation, as the tight monetary policy, enforced in 1995, tend to become more effective in slowing down the economy, while there is possibility for the world oil prices to drop from that of 1995. As a result, the trade and current account deficits are likely to reduce from 8.3 and 7.3 percent of GDP in 1995 to 7.9 and 7.0 percent in 1996 respectively, while inflation tends to drop from 5.8 to 5.2 percent.
Important factors for economic slow-down in 1996 are, for instance, the export performance which is likely to drop from the exceptionally healthy growth of 22.5 percent in 1995. The exports in 1996 are likely to register Baht 1.62 trillion, or an increase by 18.2 percent. In 1996, many manufacturing and processed agricultural exports may encounter stiffer competition and some items such as canned pineapple, jewels and jewellery, footwears, and plastic pellets can be possibly faced with anti-dumping measures from some trade counterparts.
Factors supporting next year economic growth are private and public investments, and tourism. The government will forcibly speed up its expenditure to compensate the delay in approval of the 1996 budget. Private investment will be higher than the previous year's record, due to demand for expansion of production capacity, the reconstruction of residential buildings and public utilities, and the acceleration of infrastructure projects such as the sky-train project of the Bangkok Metropolitan Rapid Transit Authority, the Bang Poon-Bang Sai-Chaeng Watthana expressways, as well as the telephone lines expansion. High private investment in the past few years will have at least two future benefits : first, slowing down price increasing future exports competitiveness. Regarding tourism sector, there is a bright prospect in 1996 since there will be many significant events, such as the celebration of the Golden Jubilee of His Majesty the King's Accession to the Throne, the EU-ASEAN leaders summit, and the Thailand Economic Forum.
4. Important Policy Issues in 1996.
The most important issue of economic management in 1996 is the maintenance of economic stability, especially the reduction of current account deficit which increased from 5.6 to 7.3 percent of GDP in 1994 and 1995 respectively. This is a new structural problem, as the widening current account deficit is not only due to the persistent trade deficit, but also the reducing surplus in the services account. Other issues required prudent attention are the controlling of inflation, the revitalisation of some production sectors after floods and the pursuance of measures designated for the country's international competitiveness upgrading.
In order for the Thai economy to achieve a desirable target for growth with stability, and to lay sound foundation for the economy in the future, the government must give priorities to the following four areas.
4.1 The reduction of current account deficit. The measures to increase the services income and to encourage savings must be hastened :
(1) Increase the potential to generate services income to counter the trend of reducing net tourist imcome, the increasing expenditures on royalty fees and patents, freight and insurance, with measures such as VAT refund for foreign tourists, tax incentives and supporting fund for private investment in technological research and development and the development of the Thai commercial fleet.
(2) Strictly adhere to the counter trade rules for special imports, especially the state enterprises' capital imports and imports for military purposes.
(3) Increase the reliance on the foreign long-term financing instead of the short-term one for greater financial stability during the period of high current account deficit, and encourage the state enterprises with good credit rating to raise funds by issuing bonds, instead of applying for overseas loans.
(4) Accelerate the savings mobilisation measures, especially the long-term contractual savings, such as reducing tax on interests received from small and long-term savings accounts, and providing the deduction allowance for life insurance premiums in calculating the personal income tax.
4.2 Inflation control. Although the sources of inflation are the problems in production of food such as chicken and pig, and the effects of floods, it is necessary to prevent domestic demand from propagating the inflationary pressures.
(1) The efficiency of public spending should be emphasised and the balance budget principle should be pursued in the FY 1997 budget.
(2) The monetary measures to control private spending should be continued and some ad hoc measures, which might cause stimulating effects on the economy, should be avoided. For example, measures, aimed at injecting liquidity into the financial and capital markets, should be imposed for emergent crisis only.
4.3 Revitalisation of the post-floods economy. More necessary measures, apart from the currently implemented ones, are :
(1) Allocating additional fund from the FY 1996 budget for the Ministry of Agriculture and Co-operatives to provide the flood-affected farmers with seeds, medicines, and animal feeds.
(2) Providing loan-term loans for the farmers whose fruits and tree plantation are damaged by the recent inundation.
(3) Undertaking the long-term flood prevention projects.
4.4 The acceleration of measures for the country's international competitiveness upgrading, in accordance with the direction submitted to the cabinet by NESDB in November 1995 :
(1) Human resource development measures, such as setting up the management and co-ordination system for the retraining and skill development of labors, including the preparation for extension of compulsory education to 12 years.
(2) Science and technology development measures, such as establishing the National Institute of Measurement Standard, providing educational instruments to stimulate the learning of sciences and technology for children, and increasing the international transfers of technology.
(3) Infrastructure development measures, such as the new telephone lines extension, and the development of inter-city expressways or motor- ways networks nation-wide. Both quality and quantity of basic services should be assured, with proper distribution to the provinces in advocate to the Economic Decentralisation and Prosperity Distribution Policy.
--Development News Bulletin, National Economic and Social Development Board, Volume 11, No. 1--
The report is summarised in four parts : 1) the world economy in 1995 and trend in 1996 ; 2) Thai economy in 1995 ; 3) the prospect of the economy in 1996 and 4) important economic policies in 1996.
1. The World Economy in 1995 and Trend in 1996.
The world economy in 1995 showed only slight improvement, recording a growth rate of 3.7 percent, compared to 3.6 percent in the previous year. Both the industrial and the Asian economies showed slower pace of economic growth. The world trade continued to slow down from the expansion rate of 8.7 percent in 1994 to 7.9 percent in 1995, however, this is a relatively high rate, given the average growth of the past decade.
Industrial economies. The expansion of industrial economies slowed down from the growth rate of 3.1 percent in 1994 to 2.5 percent in 1995 due to the exchange rate volatility among major currencies during the first half of the year, a strict monetary policy in the US, and a poor economic performance of Japan. During the last six months, the US, Japan, and Germany started to relax their monetary policies in order to stimulate the economies : thus it is expected that their economic growths in 1995 are likely to be 2.9, 0.4 and 2.6 percent with the inflation rate of 2.0, -0.3 and 2.1 percent respectively.
Asian economies. Asia was still the most active region in the world in 1995. The high growth rate during the first half of the year was assisted by the realignment of exchange rates among major currencies which turned out to benefit exports from this region, especially those of China, Korea and Taiwan. Other sitmuli are infrastructure investment and industrial expansion, but rapid economic growth put pressures on economic stability of some countries in this region. In 1995, China continued to achieve the highest growth, followed by South Korea, Malaysia, Thailand and Singapore (10.0, 9.3, 8.7, 8.6 and 8.5 percent, compared to 11.8, 8.4, 8.7 and 10.1 percent in 1994 respectively).
World economic trend in 1996. The world economy is expected to expand by 4.1 percent, up from 3.7 percent in 1995. The industrial economies is likely to continue to slow down from the growth rate of 2.5 percent in 1995 to 2.4 percent, while the growth of developing countries will go up from 6.0 percent in the previous year to 6.3 percent, thanks to the pursuance of the economic liberalisation and restructuring policies. The growth of world trade is foreseen to drop to 6.5 percent in 1996, but still high enough to stimulate the world economy.
2. Thai Economy in 1995.
2.1 Thai economy slowed down slightly.
The Thai economy expanded by 8.6 percent and the inflation rate increased to 5.8 percent in 1995. The growth rate reduced from 8.7 percent in 1994, and fell short of the 8.8 percent growth rate expected at the beginning of the year. However, the economy has been still in the continuous expansion phase since 1991. In order to prevent overheating which might threaten the economic stability, strict monetary measures have been pursued from the beginning of the year to slow down economic expansion through high interest rate and stricter credit control for non-productive activities. The tight monetary policy has begun to show its effect on private spending, however, exports and private investment were still on the rise, thus greatly contributing to satisfactory economic performance in 1995.
Major factors for economic slow-down :
(1) Public investment. The budget disbursement rate was slightly less than last year, 79.6 percent of the budget was disbursed in the FY 1995 (Oct. 1994-Sept. 1995), compared to 81 percent in the previous fiscal year. Delayed approval of the FY 1996 budget took place, following the change of government. This, however, lowered public spending on new projects which may be beneficial in the short run, but may cause a delay in necessary infrastructure projects already approved by the government.
(2) Perpetual flooding. Perpetual inundation from July to November caused some damages to the agricultural production such that its output in 1995 is likely to expand by three percent, compared to 3.5 percent expected earlier. It is observed that the damaged areas were mostly in the Central and Northern regions while the dry areas of the Northeast got unusual plenty of water and would produce higher output than ever.
(3) Decreasing private consumption. Private consumption expanded by 7.9 percent, compared to 8.2 percent in the previous year, since the purchasing power of farmers dropped according to the flood damages while that of urban investors were constrained by the lacklustre stock market.
(4) Volatility in global money market. The Peso Crisis temporarily caused a tight domestic money market since the beginning of the year. The reinvigorated stock markets in New York and Tokyo caused short- term foreign capital to flow out of Asian markets, thus resulting in tighter money market situation until the end of the year.
Foctors contributing to the high economic growth :
(1) Higher than exports. The exports this year were exceptionally healthy, especially the agricultural commodities and processed products, for the prices in the world market were still high and many suppliers in Asian region were affected by floods. Despite the fluctuation of major currencies in the world market, the Thai exports during the first ten months increased by 25.4 percent. During the first eight months, the Thai exports to the Southeast Asian and European markets grew by 31.4 and 20.5 percent respectively. Total exports for the entire year of 1995 is expected to reach as high as Baht 1.37 trillion, or equivalent to the growth rate of 22.5 percent on average.
(2) Strong private investment. Expansion of production capacity led to relatively high capital imports. Import of capital and intermediate goods and raw materials (8 months) increased by 23.9 percent and 31.8 percent respectively. The private investment index (9 months) increased by 14.9 percent in contrast to the reduction of 9.1 percent during the same period of last year. The number of application for BOI investment privileges (10 months) reduced but the capital of those projects, Baht 822.3 billion. rose by 86.3 percent. The amount of capital belonging to projects which applied for investment incentives in the investment promotion zone 3 increased by 110.9 percent.
2.2 The strength of economic stability weakened.
Economic stability in 1995 might be weakened by increasing current account deficit and rising domestic price index. However, the fiscal and monetary stability are still an anchor of stability for the entire economic system of the kingdom.
(1) Widening trade and current account deficits. Although exports during the first ten months expanded by 25.4 percent, the imports increased by 31.5 percent, resulting in the trade deficit of Baht 299.1 billion or an increase by 61.7 percent. Majority of imports was industrial machinery and basic production inputs, especially chemicals, steels, and minerals. There was also special imports of commercial aeroplanes and military equipment, totalling Baht 44 billion. Taking into account the tight monetary policy and the flood damages which slowed down imports during the third and fourth quarters, the expected trade deficit for the entire year would be Baht 340 billion (higher than previously expected at Baht 270 billion). In the services account, the tourist incomes increased by 22.3 percent compared to 13.6 percent in the previous year : thus the services balance is expected to be in surplus of Baht 40 billion, an impressive increase compared to Baht 23.6 billion in 1994. This surplus compensated the deficit in the trade account, resulting in the current account deficit of Baht 300 billion, or 7.3 percent of GDP, up from 5.6 percent of last year and higher than the previous projection of 6.1 percent.
(2) Rising Inflation. Inflation in 1995 is likely to reach 5.8 percent, up from 5.1 percent in 1994. During the first 11 months, the rise in prices was led by the food category which showed an increase of 7.8 percent, compared to 6.9 percent during the same period of last year, while the non-food category rose 4.2 percent, slightly higher than the 3.8 percent expansion recorded last year. Main factors supporting high inflation were : 1) the continued high prices of agricultural products in the world market ; 2) the high cost of food production ; and 3) the effects of floods. However, the government administered several measures to reduce inflation such as reducing import tariffs and increasing import quotas for raw material of animal feeds, and the monetary measures to discourage lending to non-productive activities and speculations. The full effects of these measures are expected in 1996.
(3) Fiscal and monetary stability. The fiscal surplus proceeds to the eighth consecutive years. The government revenue for the FY 1995 was Baht 760,755 million, increased by 16.2 percent from the previous year. The disbursement rate was lower than last year, 79.6 percent compared with 81 percent in 1994 : thus the government expenditures increased by merely 10.5 percent and the budgetary surplus was recorded at Baht 117,472 million (Baht 72,054 million in 1994). The off-budget items showed a deficit of Baht 4,935 million, resulting in the government cash surplus of Baht 112,537 million and the cash at the treasury at the end of September of Baht 300,832 million. Moreover, the public foreign-debt service ratio dropped to 3.8 percent and foreign reserve at the end of October was US$ 35,731 million, or equivalent to 6.3 months of import value. These are some evidences of the strong fiscal and monetary stability in 1995.
3. The Prospect of the Thai Economy in 1996.
The economy may continue to slow down. The Thai economy is anticipated to grow by 8.5 percent, down from 8.6 percent in 1995. Agricultural and construction sectors are likely to expand while the manufacturing and service sectors poise to slow down. Economic stability is expected to improve in both aspects, namely the current account and inflation, as the tight monetary policy, enforced in 1995, tend to become more effective in slowing down the economy, while there is possibility for the world oil prices to drop from that of 1995. As a result, the trade and current account deficits are likely to reduce from 8.3 and 7.3 percent of GDP in 1995 to 7.9 and 7.0 percent in 1996 respectively, while inflation tends to drop from 5.8 to 5.2 percent.
Important factors for economic slow-down in 1996 are, for instance, the export performance which is likely to drop from the exceptionally healthy growth of 22.5 percent in 1995. The exports in 1996 are likely to register Baht 1.62 trillion, or an increase by 18.2 percent. In 1996, many manufacturing and processed agricultural exports may encounter stiffer competition and some items such as canned pineapple, jewels and jewellery, footwears, and plastic pellets can be possibly faced with anti-dumping measures from some trade counterparts.
Factors supporting next year economic growth are private and public investments, and tourism. The government will forcibly speed up its expenditure to compensate the delay in approval of the 1996 budget. Private investment will be higher than the previous year's record, due to demand for expansion of production capacity, the reconstruction of residential buildings and public utilities, and the acceleration of infrastructure projects such as the sky-train project of the Bangkok Metropolitan Rapid Transit Authority, the Bang Poon-Bang Sai-Chaeng Watthana expressways, as well as the telephone lines expansion. High private investment in the past few years will have at least two future benefits : first, slowing down price increasing future exports competitiveness. Regarding tourism sector, there is a bright prospect in 1996 since there will be many significant events, such as the celebration of the Golden Jubilee of His Majesty the King's Accession to the Throne, the EU-ASEAN leaders summit, and the Thailand Economic Forum.
4. Important Policy Issues in 1996.
The most important issue of economic management in 1996 is the maintenance of economic stability, especially the reduction of current account deficit which increased from 5.6 to 7.3 percent of GDP in 1994 and 1995 respectively. This is a new structural problem, as the widening current account deficit is not only due to the persistent trade deficit, but also the reducing surplus in the services account. Other issues required prudent attention are the controlling of inflation, the revitalisation of some production sectors after floods and the pursuance of measures designated for the country's international competitiveness upgrading.
In order for the Thai economy to achieve a desirable target for growth with stability, and to lay sound foundation for the economy in the future, the government must give priorities to the following four areas.
4.1 The reduction of current account deficit. The measures to increase the services income and to encourage savings must be hastened :
(1) Increase the potential to generate services income to counter the trend of reducing net tourist imcome, the increasing expenditures on royalty fees and patents, freight and insurance, with measures such as VAT refund for foreign tourists, tax incentives and supporting fund for private investment in technological research and development and the development of the Thai commercial fleet.
(2) Strictly adhere to the counter trade rules for special imports, especially the state enterprises' capital imports and imports for military purposes.
(3) Increase the reliance on the foreign long-term financing instead of the short-term one for greater financial stability during the period of high current account deficit, and encourage the state enterprises with good credit rating to raise funds by issuing bonds, instead of applying for overseas loans.
(4) Accelerate the savings mobilisation measures, especially the long-term contractual savings, such as reducing tax on interests received from small and long-term savings accounts, and providing the deduction allowance for life insurance premiums in calculating the personal income tax.
4.2 Inflation control. Although the sources of inflation are the problems in production of food such as chicken and pig, and the effects of floods, it is necessary to prevent domestic demand from propagating the inflationary pressures.
(1) The efficiency of public spending should be emphasised and the balance budget principle should be pursued in the FY 1997 budget.
(2) The monetary measures to control private spending should be continued and some ad hoc measures, which might cause stimulating effects on the economy, should be avoided. For example, measures, aimed at injecting liquidity into the financial and capital markets, should be imposed for emergent crisis only.
4.3 Revitalisation of the post-floods economy. More necessary measures, apart from the currently implemented ones, are :
(1) Allocating additional fund from the FY 1996 budget for the Ministry of Agriculture and Co-operatives to provide the flood-affected farmers with seeds, medicines, and animal feeds.
(2) Providing loan-term loans for the farmers whose fruits and tree plantation are damaged by the recent inundation.
(3) Undertaking the long-term flood prevention projects.
4.4 The acceleration of measures for the country's international competitiveness upgrading, in accordance with the direction submitted to the cabinet by NESDB in November 1995 :
(1) Human resource development measures, such as setting up the management and co-ordination system for the retraining and skill development of labors, including the preparation for extension of compulsory education to 12 years.
(2) Science and technology development measures, such as establishing the National Institute of Measurement Standard, providing educational instruments to stimulate the learning of sciences and technology for children, and increasing the international transfers of technology.
(3) Infrastructure development measures, such as the new telephone lines extension, and the development of inter-city expressways or motor- ways networks nation-wide. Both quality and quantity of basic services should be assured, with proper distribution to the provinces in advocate to the Economic Decentralisation and Prosperity Distribution Policy.
--Development News Bulletin, National Economic and Social Development Board, Volume 11, No. 1--