Basic economics

Re: “Why are reserves down and deficits up?”, (Opinion, Feb 9).

I think I can explain why the state deficit is deeper year-on-year for the October-December 2016 quarter. The government boosted spending in order to minimise the effects of lower consumption in that quarter.

With regard to the broader deepening of the deficit, there is currently a huge public works programme under way. It is most obvious in the commuter railway construction across Bangkok, but there is also significantly heavier public infrastructure spending upcountry.

When exports are weak (due to factors largely outside of Thailand’s control), the domestic economy is soft, inflation is very low, and the government can borrow at historically low interest rates in its own currency, the state should run deeper deficits than normal. It’s basic Keynesian economics. And the market has faith in Thailand’s ability to service its debt.

The yield on the 10-year Thai government bond is still only 2.7% — so cheap it’s almost free money (until the US election it was fairly stable at around 2.2%). That yield is much lower than the 10-year bond yield of Malaysia (4.1%), let alone Indonesia (7.5%), and only slightly higher than that of Australia (2.66%).

As for the treasury reserves, I don’t know what the appropriate level is. But there doesn’t seem much point keeping much more cash on hand than you need, given how liquid Thailand’s debt market is. I suspect the big reserve is a hangover from the post-1997 crisis era. STEVE DAVIS