BANGKOK: Bangkok Bank’s chief economist warned that ‘liquidity in the global market is like air’ as he highlighted that liquidity is tightening. He said governments, around the world, must deploy massive fiscal measures. This was needed to preserve the structure and discipline of national economies in these ‘unprecedented times’. He warned that if the problem persists beyond three months, then the burden may be too great for already indebted governments to bear.

Top Thai economist, Burin Adulwattana, warned this week that Thailand needed a blanket approach and strong fiscal measures to help the economy get through the coronavirus crisis. However, he also said that if the problem was not brought under control within 3 to 4 months, then there could be a ‘big problem’ as such an approach, by its nature, was unsustainable. The economist was optimistic, however. He felt that ‘things should get’ better if the virus is contained by summer.

Bangkok Bank Chief Economist made his comments on Wednesday while speaking to the Foreign Correspondents Club in Bangkok. Burin Adulwattana said that, right now, the government must step in with strong fiscal measures but the situation would become unsustainable if there is a prolonged emergency.

A top Thai economist has indicated that the Thai government and other ministries in countries around the world have three to four months to contain the problem of the coronavirus.

Speaking to the Foreign Correspondents Club in Bangkok on Wednesday evening, Bangkok Bank Chief Economist Burin Adulwattana said that the current challenge is ‘unprecedented’ and unlike other crises.

Blanket support to avoid wholesale bankruptcies

Mr Burin indicated that a ‘blanket’ approach was needed from governments to assist businesses from airlines to retailers facing possible bankruptcy because of the coronavirus emergency.

He warned that monetary policy action such as cutting interest rates, although welcome, would not address this problem.

‘If life comes to a standstill, the government must play its part,’ explained Mr Burin who said that businesses have rents to pay as do workers with mortgages and credit card bills.

Massive fiscal measures required

He said massive fiscal measures must be taken by the Thai government such as seen in European countries but asked the question, for how long will this be sustainable?

‘How long can we keep printing money to take care of the debts of the whole country,’ he asked. ‘I think this could be a big problem.’

Mr Burin pointed out that many governments are already heavily indebted and indicated that an emergency that extends beyond three months could be problematic.

‘Things should get better’

The top bank economist, nonetheless, said he was optimistic. He quoted Churchill saying there was no point in being a pessimist.

 ‘My baseline is things should get better,’ Mr Burin pronounced and suggested that this should happen in June or July. ‘I think once we get to summer, the containment will be achieved, at least in Europe.’

Concerns about next winter and the need for a vaccine

However, he warned that another challenge may be facing the country towards the end of the year as winter approaches saying that a vaccine for the virus is critical.

‘Lets hope we can find a vaccine before then or a method to not let it get out of hand again because you know, winter is coming at the end of the year.’

Biggest crisis since World War II

This week, as stock markets tumbled and then reacted positively to news of a giant-sized $1 trillion US federal stimulus and some positive news on the creation of a vaccine and testing kits, it has become clear that this crisis dwarfs the 1997 Asian crisis and the 2008 financial meltdown.

It may not be apparent now in economic terms, but it soon will be.

To a large extent, this financial crisis is still ahead of us and is being created by emergency actions by governments throughout the world to protect the health of those within their borders especially the old and vulnerable.

It is the greatest emergency since World War II.

Thailand appears to be working towards a controlled and gradual lockdown to reduce transmission

Thailand recorded a large spike in infections this week and already seems to be implementing a lockdown in stages with expert panels having already assessed the scope of the health emergency.

This will now depend largely on the ability of the population to reduce transmission of the disease by self-isolating.

A report by Dr Sophon Iamsirithavorn, the Chief of the Communicable Disease Division at the Ministry of Public Health last week, indicated that an infection rate of 1.6 will lead to 400,000 infections while 2.2 could see over half the population picking up the virus.

Stanford doctors say death rate among a fully tested population could be as low as 0.3%

The other question that occupies people’s minds with news reports of young families dying together in the UK and a confirmed 8% death rate among reported cases of the infection in Italy is what is the effective death rate?

The numbers show a considerable variation depending on the context. The reason for the variation is both the demographic profile of the population being impacted and also the depth of testing or the sample.

A professor in Stanford this week, John PA Ioannidis, suggested that the death rate could be as low as 0.3% if 100% of the population was tested.

Indeed, the ability to test vast swathes of the population has been shown to be the best way to address the challenge posed by this virus as we have seen with successful efforts in South Korea and Germany where deaths have been limited despite widespread outbreaks.

South Korea, for instance, invented testing booths where users can test in seconds with the booths then cleaned down just as fast, for another user to come on.

The ability to rapidly diagnose large numbers of the population is the best approach but requires resources and technology.

Thai economic planners now focused on economic survival as more businesses are shuttered

Thai economic planners even before the outbreak of this emergency, were still recovering from the shock effects of the US-China trade war, the crippling effects of an overvalued currency as well as a delayed budget bill and the worst drought to affect farming in 40 years.

The virus has now cut off nearly all inbound travellers to the kingdom with tourism numbers for last week down by 85% and with all tourist-related businesses expected to be shut down within the week as lockdown measures expand beyond Bangkok.

Thailand’s economic team, led by Deputy Prime Minister Somkid Jatusripitak, has indicated that all prospects for growth and normal analysis of the economy are being jettisoned until the end of the year when it is hoped that this crisis will have abated.

The focus is on survival and protecting large segments of employment.

Central bankers working to prevent a financial shock as liquidity tightens with a demand for dollars

For now, the world’s central banks are attempting to manage liquidity and as governments attempt to address a rescue of their economies with stimulus measures like those advocated by Mr Burin. The question then is how to avoid a financial shock?

‘Liquidity in the global market is like air,’ Mr Burin told his audience on Wednesday and presently, there is a growing scarcity of dollars which is prompting the Federal Reserve to issue swaps with the Bank of England, the European Central Bank and the Bank of Japan.

The situation has prompted a surge in demand for the US dollar which is seen as the ultimate safe haven at times of emergency.

The key question is how long will it take to bring the situation under control. Certainly, for the next two weeks, we will see the situation darken with rising infections.

Now is the time for decisive government action coordinated with the public.

Thailand lowered interest rates last week to a historic low of 0.75% on Monday and it is anticipated that a further cut will come soon.

The Bank of Thailand’s Monetary Policy Committee called for banking institutions in the kingdom to work closely with borrowers while also suggesting that the Bank of Thailand would be focused on managing liquidity.

Further reading:

Thailand faces lockdown if Phase 3 breaks out as the numbers infected more than treble in 1 week

UK Ambassador warns that links with home may be disrupted for many months as Thailand closes

Thai government responds with targeted stimulus plans to help the economy through the virus crisis