Bangkok Post Nikhil B. Srinivasan Column.

Byline: Nikhil B. Srinivasan

Oct. 4--The IMF came out on Monday and recommended that Thailand further reduce its interest rates to spur consumption and permit businesses to cut their interest costs. On reading such a comment, one can only assume that the International Monetary Fund is as befuddled by the situation as anyone else and continues to harp on the same theme. The government, unsurprisingly, came out and said that interest rates were low enough.

It does not take the Bank of Thailand governor to remind the IMF that we have had considerable liquidity in the system for a while without having produced a significant increase in consumer demand. The fact is obvious. Another 50 basis points will not fix our economy's problems or spur growth.

In the last few days, a number of analysts have expressed their views on global rate cuts and their impact. Incredibly, some believe the aggressive rate cuts will spur the global economy and keep it out of recession, and that this will benefit countries such as Thailand. I disagree on both counts.

The question the IMF and others should be asking is how can we restore growth to the Thai economy? I am curious to know how a domestic rate cut can achieve that under the current set of circumstances -- not that I have anything against another rate cut; 50 basis points is fine with me. I just don't see it as a primary measure at this point.

The current situation is not about the availability or the price of money. It is about reforming the supply side to raise the efficiency of investment. We need a set of regulatory and economic measures to boost the return on capital, thereby attracting investment, both domestic and foreign. By focusing on the price of money, people are missing the point.

Some of the measures are already under way, notably the Thai Asset Management Corporation. The TAMC will take on 1.24 trillion baht in assets, mainly from state banks. Too much capital is locked up in inefficient enterprises. I believe the TAMC could be successful in unlocking value if the approach is correct -- a proper analysis of the borrower and the viability of continuing to support such a borrower through the system.