Prime Minister Thaksin Shinawatra has expressed his confidence in the sound foundation of Thailand?s economy and urged Thai people to be confident in themselves and join forces in creating confidence all over the country.

The Prime Minister stressed the importance of trust and confidence during his talk at a gala dinner held on 12 July 2005 at the Royal Thai Navy Convention Hall to mark the 72nd anniversary of Mont Fort School. Citing trust and confidence as a key to success in the capitalist economic system, Prime Minister Thaksin said that he has been traveling around the world to create better understanding about Thailand, so that the country would gain more confidence from the international community. Confidence would be gained when factual information, on both strengths and weaknesses, was given in a straightforward manner.

For this reason, he considered it necessary to explain the present situation of Thailand?s economy. Thai exports during the first half of this year came to US.5 billion, representing an increase of 13.6 percent over the same period last year. The Government has set the export target in 2005 at about 7 billion, an increase of 19 percent. The country?s imports, excluding oil products, during the same period grew by 11 percent. Thailand would gain a trade surplus if oil imports were not included. The Prime Minister cited the impact of higher oil prices as something beyond the Government?s expectation.

Regarding unemployment, Thailand?s unemployment rate has dropped to only 2.29 percent. Industrial capacity utilization now stands at 71.4 percent. The country?s income from tax collection has increased by 19.7 percent. The figure shows that the people?s purchasing power and the overall economy have continued to grow. As a result, Thailand?s trade deficit this year is likely to be only three to four billion dollars.

Interestingly, the Prime Minister said that the value of Thai agricultural products rose by 19 percent and farmers? income by almost 10 percent. Private investment has also been on the rise. If the current account balance and the service balance were involved, the trade deficit would be not more than .5 billion, representing less than 2 percent of the country?s GDP. This amount was considered minimal in the face of higher oil prices.

The Prime Minister said that he was glad that Thailand had been able to set a balanced budget, so it would face a very low risk under the present situation. He pointed out that the country?s overall balance of payments remained positive, since cash flows from direct foreign investments were huge. At the same time, Thailand?s international reserves now came to billion. Because of this positive trend, the Prime Minister urged people not to panic, saying that the Thai economy still remained very healthy. The worrisome elements involved higher oil prices, and in this area the people could help by saving energy. As for the financial institutions, their non-performing loans (NPLs) throughout the sector declined from 38.6 percent in 1999 to only 10.9 percent now. The NPLs in the Government Savings Bank and the People?s Bank accounted for only 2.4 percent. In this situation, people were urged not to worry about the issue.

Thailand has continued its economic trends towards domestic-led growth based on self-reliance. Prime Minister Thaksin Shinawatra talked about domestic-led growth with a group of business people at a ceremony to present the Prime Minister?s Industry Awards on 19 May 2005. He quoted well-known US economist Paul Krugman, saying that Asian countries would need to shift to the domestic-led growth model in the future. Thailand began to adjust the Thai economy towards domestic-led growth in 2001, when the present administration assumed office in its first term. The country has continued to promote exports as well, in tandem with boosting domestic-led growth.

The Prime Minister said that Thailand?s industrial production began to proceed at full steam following the 1997 economic crisis, and that it was time now to change or increase industrial machinery. Higher oil prices have led to slight trade and current account deficits, but they were at a manageable level. The Prime Minister urged entrepreneurs not to worry, since he was monitoring all economic figures, but to focus on value creation, saying that Thailand had a labor force of good quality, which would lead to quality production. The Government is ready to adjust various policies to support entrepreneurs and enhance their competitiveness. It also has a policy to promote industrial diversification to rural areas, as this would help strengthen the country?s industrial development. Apart from reducing transportation costs, the policy would bring happiness to local people, since they would not have to leave their communities for work elsewhere. As a result, entrepreneurs would receive good productivity, and local people would have a better quality of life.

Regarding the Prime Minister?s Industry Awards, Prime Minister Thaksin said that the awards presentation began in 1993 during the Chuan Leekpai administration, and since then it has taken place every year. This year, a total of 28 industrial operators were honored for their outstanding achievements in productivity, safety management, environmental and energy management, and small and medium-sized industry management. PTT Public Company?s gas separation plant in Rayong Province won the top prize for 2005.

In his radio address on 21 May 2005, the Prime Minister commended the gas separation plant, which was a state enterprise, for its efficient operation and management. He indicated that all state enterprises registered on the Stock Exchange of Thailand had operated successfully and had brought in more earnings. He cited PTT Public Company as an example, saying that the Government is still a major shareholder of this company. Other investors did not get involved in managing the company; they only sold and bought shares. The Prime Minister said that PTT Public Company was enjoying high market value, and the Government has gained more benefits from it now than in the past when it was a state enterprise.

The concept of ?value creation? is emphasized in the Thai government?s economic strategy during the second term of the Thaksin Shinawatra administration.

Prime Minister Thaksin explained this concept during his address at the 15th Asian Corporate Conference and his discussion with Mr. Steve Green, President of the American Chamber of Commerce in Thailand. The two event took place on 8 June 2005 in Bangkok.

He told participants in the conference that most developing countries have made commodity exports central to their development strategy. As they move up the development ladder, they add value in the form of manufacturing and assembly, which require low- to semi-skilled labor. But over the long term, this model cannot be sustained. Commodities tend to face unfavorable terms of trade. While developing countries may never be able to move away completely from commodities, the Prime Minister believes that they have to make value creation a bigger part of their development strategy.

He stated that value creation goes beyond simply adding value. Developing countries in Southeast Asia and elsewhere may proudly point to high-tech assembly plants where value is added to high-tech products. But the end of the day, the value of such products comes not from the assembly or the plants, but from intellectual property ? the patents, the copyrights, the designs ? that go into each product.

Prime Minister Thaksin pointed out that, for value creation to take place, Southeast Asian countries must first identify their comparative advantages. They must then add intellectual value and skills to create pricing power for their products and services in the world market.

He explained that value creation means that ?one plus one equals more than two.? How much more depends on how highly the market values the ideas that go into the product. As for Thailand, which is rich in artistic and aesthetic traditions, value creation may mean creating distinctive and unique products, developing new brands, and differentiating products based on the unique Thai style. Or it may be based on something else entirely. What is important is that people must be given the tools and freedom to explore, to experiment, and to create. That is what makes the free market so compelling.

The Prime Minister was convinced that value creation represented a new economic model for Thailand and, quite possibly, for Southeast Asia. As its people become more educated and its economy moves further up the development ladder, value creation will contribute substantively to GDP growth. He believes that the creation and protection of intellectual property will become increasingly important as the value creation model takes hold.

To encourage value creation, he said, education is the first part of the equation. Thailand is pushing ahead with educational reform in order to create knowledge workers in every field. The second part is the creation of an enabling regulatory environment. In this regard, the Prime Minister indicated that the concept and practice of good governance was of great importance to his administration. Thailand is also pushing for comprehensive reforms in the financial, corporate, and public sectors, in line with good governance practices. The country is determined to further improve its corporate and banking sectors to make Thailand one of the most convenient and attractive places to do business.

In his keynote address at the CEO Dialogue on 1 December 2004 in Bangkok, the Prime Minister cited the establishment of the Value Creation Economy as a priority policy of his administration. He said that the Government intends to increase the worth of Thailand?s economy by adding value on top of the direct value of labor, capital, and land. It wants to add the value of Thai culture and skills to products and services. The value of intellectual property is one possibility. Adding such value to Thailand?s comparative advantages will help make Thai products and services truly sustainable in the market place, and they will have a greater chance of survival.

Prime Minister Thaksin believes that the ?value creation economy? is the future and is also a new way of looking at the survival of global trade in the 21st century. In any case, Thailand cannot transform the present situation into a Value Creation Economy until it creates a new structure for the Thai economy.

For this reason, he said, a major restructuring process is underway and it requires both time and determination. The Government aims to pursue a number of major infrastructure projects to resolve inflationary pressure and remove supply constraints. Huge public investment is needed to tackle infrastructure bottlenecks and reduce logistics costs for business. The Government believes that necessary infrastructure projects, including mass rapid transit and logistics systems, will enhance efficiency. They will also boost the productivity of the country?s production and service industries and create greater cost efficiency and competitiveness for Thai industries.

The Prime Minister pointed out that Thailand?s economic picture remained bright over the long run and the country was moving along its road of flexible and stable growth. He said that upon assuming office as Prime Minister in February 2001, he introduced the ?Dual Track Policy,? which emphasized both strengthening the domestic economy in parallel with promoting export growth. The Prime Minister stated that the Dual Track Policy had proven to be very successful in propelling the Thai economy.

He revealed that Thailand is now shifting from being an export-dependent economy to becoming an economy with greater balance between domestic and diversified external demand. It is also moving towards development of new niche enterprises with pricing power. At the same time, it is rebuilding domestic resiliency through reforms and infrastructure investment.

The Prime Minister said evidence indicates that Thailand is on the right track. The country?s external debt has been reduced greatly, to the point that Thailand has now become a net creditor nation. Thailand was setting about adapting to a world of changes in a flexible and innovative manner.

The investment situation in Thailand remains healthy and the country is still attractive to foreign investors. The Office of the Board of Investment (BOI) is confident that investment value this year will certainly meet the set target.

According to the BOI, it is expected that foreign investment in Thailand this year will reach 700 billion baht and create job opportunities for 200,000 people. Last year, Thailand attracted 656 billion baht worth of investment projects. The BOI expects that 50 to 60 percent of the investment projects seeking its promotional privileges in 2005 will belong to foreign companies or Thai-foreign joint ventures.

During the first six months of this year, the BOI received applications for 614 investment projects, worth 277 billion baht, representing an increase of 6.8 percent. Out of this value, the automotive and auto parts group came first, with 144 projects worth 105 billion baht. Coming second was the public facility group, with 118 projects worth 72 billion baht, followed by the petrochemical group, with 82 projects worth 36.5 billion baht, and the electrical and electronics group, with 106 projects worth 31.4 billion baht.

From October 2004 to June 2005, representing nine months of the 2005 fiscal year, investment applications came in from 934 projects, worth almost 549 billion baht. The value surpassed the set target by 185 percent. Japan remained the largest foreign investor in Thailand, and its investment projects involved mainly automobile and auto parts production. This year, Thailand?s auto production will reach one million units, the first time in the country?s car manufacturing history.

The BOI revealed that in granting promotional privileges, it focuses not only on the number of projects and the investment value. Investment projects contributing to a value creation economy and those aimed at reducing imports would receive greater attention. Investment projects for export, with Thailand as the production base, have not been affected by the present economic situation resulting from higher oil prices. Labor costs and electricity fees have not yet been adjusted.

A report from the BOI said Seagate, one of the world?s leading electronics manufacturers, has decided to expand its investment base in Thailand, with an investment of one billion US dollars, or 40 billion baht. The company also wants to employ 3,500 engineers for the project. The huge investment showed that foreign investors were confident in the Thai economy. The Government is undergoing tax restructuring for the electronics industry in line with its policy to promote the software industry and to become one of the largest production bases in this region for the electronics industry.

The Government is taking proactive steps to drive Thailand?s economic growth through free trade agreements (FTAs) with various trading partners. The FTA strategy has been used as a major mechanism to expand the country?s international trade and enhance its competitiveness, especially industrial capabilities.

In his talks on FTA on 20 June 2005 at the Queen Sirikit National Convention Center, former Commerce Minister Thanong Bidaya stressed the importance of this strategy to help strengthen Thailand, as mentioned in the Government?s policy statement. He pointed out that the proactive move on FTAs would create a specific alliance, something like economic partnership. If Thailand did not take any steps towards free trade, it was likely to lose its market share in the world market, since many countries had already opened their free trade areas, leading to tax reductions on their goods.

Minister Thanong explained that the Government believed that trade liberalization would be inevitable in the capitalist system. The Thai economy depends largely on exports, the export sector?s contribution to the country?s GDP accounting for 60 percent in 2004. As FTAs should lead to tangible benefits for all sides involved, Mr. Thanong called for cooperation to create a win-win situation for them. This means that all sides must both give and take in opening up their markets to one another.

He urged Thai people to adjust themselves, develop their capabilities, and seek as many alternatives as possible for themselves, so that they would be able to stand firmly on their own feet. With FTA arrangements, Thailand stands a good chance of selling more products, since its traditional markets are large, while its new markets have high purchasing power or serve as gateways to other regions.

Minister Thanong said FTAs were considered a key mechanism for increasing competitiveness in terms of prices. The reason was that import tariffs on products under FTAs would be lower than those imposed by countries outside the agreements. As a result, prices would also be lower, and the countries entering into FTAs would be able to negotiate tax reduction and a timeframe for tariff cuts.

Among the benefits Thailand would gain from its FTAs with trading partners would be a decline in prices of imported raw materials, leading to lower production costs. Moreover, the raw materials would be diverse, and Thailand would forge closer cooperation with its trading partners in technological development to improve the production process.

Based on the Rule of Origin, Minister Thanong said Thailand must promote the use of local content in the production process. In this connection, the Government is striving to empower the grass roots, develop small and medium-sized enterprises (SMEs), and give a major boost to the ?One Tambon, One Product,? or OTOP, program. The Prime Minister stated his intention to continue to travel abroad to help expand the OTOP markets overseas.

Thailand has engaged in FTA arrangements with eight countries and two regional groupings. Its negotiations under FTAs have already been concluded with Australia and New Zealand. Negotiations are now underway with six countries, namely Bahrain, China, India, Japan, Peru, and the United States, and two economic groupings: The Bangladesh-India-Myanmar-Sri Lanka-Thailand Economic Cooperation (BIMSTEC) and the European Free Trade Association (EFTA).

Minister Thanong stated that, in the open-market economy, trustworthiness, confidence, faith, honesty, accountability, transparency, and standards are more valuable than products themselves. These issues play an important role in clients? decisions to buy goods. He urged manufacturers to pay greater attention to these issues and add value to their products throughout the value chain at all steps of production and distribution. They were also urged to attach greater importance to good governance and corporate social responsibility.

He believes that FTA negotiations will help reduce trade barriers and find new markets. The Government wants FTAs to develop value creation in goods and services to increase the worth of the Thai economy.

The Government is well aware of the importance of small and medium-sized enterprises, which will be a driving force for the Thai economy. Prime Minister Thaksin Shinawatra said that the Government is focusing on building new entrepreneurs while strengthening the existing ones.

He told a group of 500 SME operators gathering on 11 June 2005 in Chiang Mai that when he assumed office in his first term in 2001, he announced the policy of supporting community enterprises. Later, the SME Development Bank of Thailand was established in response to this policy. The Government has allocated funds to provide training for SME operators in various fields, such as packaging. He believes that SMEs will play a vital role in increasing Thailand?s export volume and value in the future.

During the second term of his administration, the Prime Minister wants all SME-related sectors to support one another in order to create a strong SME base. He said that the more entrepreneurs were built up, the more job opportunities were generated. So the Government is ready to continue to support SMEs to grow further. He asked the Ministry of Industry to persuade the private sector to help boost SMEs.

The Prime Minister suggested that SME websites be created to link with their networks as a way of expanding their businesses. Moreover, he urged SME operators to list their businesses on the Stock Exchange of Thailand, if possible. He also stressed that, apart from having good knowledge about production, SME operators needed to know how to do their accounting in a systematic manner, so that they would know exact production costs and income and be able to manage their finances properly.

He stated that the Government intends to create product networks. After the establishment of a design center in Thailand, the next step is that designers worldwide will be invited to provide training for Thais to be innovative in their designs. The Government also aims to promote the creation of brand names, with the word ?Thailand,? in order to publicize that the country has products of good quality. It is also seeking ways to invest in enhancing the quality of Thai products.

SMEs are now the driving force behind the Thai economy, as they provide work experience and generate employment. Out of the total number of enterprises in Thailand, about 96 percent are SMEs, covering businesses related to manufacturing, wholesaling and retailing, and services. Several financial institutions, including state-owned and commercial banks, have rendered their support by providing credit facilities and advice to SMEs. To foster the growth of SMEs, the Government is working with the private sector to provide necessary infrastructure through the National SME Promotion Office, the SME Development Bank, and the SME Venture Capital Fund.

The Government has decided to carry out seven mega-projects, involving a total investment of 1.7 trillion baht, in the next five years, and improve Thailand?s logistics system. The decision would also help enhance the country?s trade and industrial capabilities in the long run. The Prime Minister cited the projects as investments for the future, not economic stimulus measures.

The Cabinet, during its meeting on 14 June 2005, acknowledged the investment plan for the mega-projects, proposed by the Ministry of Finance. The first project, on mass transit, requires an investment of about 423.4 billion baht, accounting for 25 percent of the total investment fund. It aims to enhance the efficiency of the transport system and cut the country?s energy bills, as well as upgrade the quality of life for people in Bangkok and its perimeter. The project involves the construction of seven electric train routes totaling 277.4 kilometers in length.

The second project, on communications and transport, involves an investment of 328.6 billion baht, representing 19 percent of the fund. The objective is to develop Thailand as the regional transportation hub. Towards this aim, the transport system will be developed in an integrated manner to reduce production costs in the country?s transport sector and enhance its competitiveness. The project also includes the development of the rail system, highways, expressways, international airports, and deep-sea ports, as well as the acquisition of new aircraft.

The third project, on housing, involves 213.8 billion baht, accounting for 12 percent of the fund. The project will build 450,000 housing units in Bangkok and other major cities in the regional areas of the country. The objective is to provide low-income earners and the underprivileged in urban areas with housing units in good environmental conditions and at reasonable prices.

The fourth project, on water resources, requires an investment of 200 billion baht, or 12 percent of the investment fund. It is intended to manage Thailand?s water resources in a systematic manner and on a sustainable basis. To achieve this aim, the project will build the capacity of local communities in water management, water source provision, and water source conservation and rehabilitation.

The fifth project, on education, requires an investment of 96.4 billion baht, accounting for 6 percent of the total fund. It aims to develop the education system and human resources, especially research in science and technology, in order to enhance Thailand?s competitiveness.

The sixth project, on public health, involves an investment of 96.39 billion baht, or 6 percent of the fund. It aims to develop and upgrade the country?s public health infrastructure to be at the same standard nationwide.

The seventh project includes other schemes to help enhance the country?s competitiveness, such as those involving the development of energy, electricity, communications, and the tourism industry. It requires an investment of 342 billion baht, or 20 percent of the total investment fund.

Out of the total investment fund of 1.7 trillion baht, 39 percent is likely to come from the national budget, 13 percent from income earned by state enterprises, 42 percent from domestic and foreign borrowing, and the remaining 6 percent from other sources. A preliminary study shows that all seven mega-projects, to be implemented from 2005 to 2009, will help spur the economy and have no negative effect on the country?s fiscal stability.

In order to promote the businesses that have cost-effectiveness, responsiveness, and reliability in distributing products and services to local and overseas consumers, the country?s entire logistics system must be upgraded. This will help add value to products and services and lead to the efficient use of energy. In this regard, the Cabinet in November 2004 gave the green light to the improvement of Thailand?s logistics system, as proposed by the Office of the National Economic and Social Development Board.