Thais to move swiftly to limit strife damage

By Paul Eckert, Asia Correspondent

WASHINGTON (Reuters) - Thailand's political turmoil is likely to cause a 1-2 percent contraction of GDP in 2009, on top of a 3 percent drop driven by the global recession, Finance Minister Korn Chatikavanij said on Saturday.

"We're anticipating that the overall GDP impact as a result of the troubles could be as much as one to two percent," he said.

With Bangkok already predicting a three percent contraction from the global slowdown, which has hit Thai exports and tourism, "we're looking at something closer to possibly four to four and a half (percent)," he added.

Tourism was hit particularly hard by recent street violence in a long battle between royalists, the military and urban Thais who back the current government and supporters of exiled former Prime Minister Thaksin Shinawatra whose power base was mainly drawn from the millions of rural poor.

"The combination of the impact of the slowdown of the global economy and the social unrest domestically means that we're anticipating tourist arrivals, originally forecast at 14 million, to be something closer to 11 million," said Korn.

"That's a significant loss. Basically your profit margin is gone," he told Reuters in an interview in Washington.

Korn said his government, which lifted a 12-day state of emergency in Bangkok on Friday, aimed to limit the economic damage through "swift action" in pushing through fiscal stimulus measures.

"We're hoping that we'll be able to regain the world's confidence in our country sufficiently quickly for us to mitigate the economic damage that the events could otherwise cause," he said.

"Unless we find resolution quickly and visibly it could easily lead on to declines longer term in FDI (foreign direct investment) and the world's willingness to engage with Thailand," Korn added.

Thailand would have to increase public borrowing to fund the fiscal stimulus, part of a three-year package of infrastructure, renewable energy and rural development plans.

But with ample foreign reserves and deep domestic liquidity, "the majority of that debt will be raised domestically," he said.

"We have significant fiscal space as a result of relatively conservative policy ever since the financial crisis hit Asia in 1997," said Korn.

(Editing by Andrea Ricci)