Indeed, under the Thaksin Shinawatra government, state spending has jumped to a new plane, with the 2002 fiscal budget calling for a record 1.03 trillion baht in expenditures. To a degree, the efforts have begun to pay off, with the Thai economy in 2002 expected to post growth of 4.9%, among the highest growth rates in the region despite considerable uncertainties in the global economy.

The dilemma now faced by policymakers, however, is whether the fiscal spending can now be eased in light of external risks. A consolidation in spending too quickly risks undermining the recovery, particularly if exports decline and growing household debt causes a fall-off in domestic consumer spending. But further deficit spending only means more public debt, leading to worries in the medium-term.

The 2003 fiscal budget, which started in October, calls for a modest decline in spending, with an expenditure target of 999 billion baht. The deficit, originally projected at 149 billion baht, is likely to come to less, given that tax revenues well exceeded estimates for the first two months of the fiscal year.

A Pathum Thani hospital placed a giant mock-up of a health coverage card at its entrance during a promotion of the 30-baht health care programme when it was first introduced in the province. Total spending under the programme in fiscal 2002 was 45 billion baht, increasing to 58 billion in fiscal 2003.

State revenues in fiscal 2002 exceeded targets by 45 billion baht, reflecting improved corporate profitability, higher consumer spending and improved efficiency in tax collections. For September and October, the Revenue Department posted revenues 6.7% over target, with the Excise Department coming in 26% over target.

But some economists caution that the picture was less rosy than the actual figures might otherwise suggest.

Somphob Manarungsan, an economist at Chulalongkorn University, notes that deflation could easily cause the country's debt problems to escalate sharply, particularly given the huge amounts of ``hidden'' liabilities held by state financial institutions used to finance programmes such as the village investment funds, farm debt suspension or the People's Bank microfinance scheme.

Unless such programmes resulted in a multiplier effect to further stimulate growth, the result would be even less fiscal flexibility for the government to boost growth from the grass-roots level, he said.

Financing for these populist programmes has largely been off the central budget. Funds for the investment funds and the People's Bank, for instance, have come from borrowing from the Government Savings Bank, while the debt suspension is coming through the Bank for Agriculture and Agricultural Co-operatives.

Dr Somphob said that ultimately, the government would have to rein in spending on some programmes, such as the 30-baht universal health care programme, if it was to maintain fiscal sustainability going forward.

He said that the programme was undermining the country's health system, and would accelerate the transfer of resources from public hospitals to private ones, as doctors and health care professionals sought higher incentives.

In any case, the government is committed to maintaining the public debt under a ceiling of 60% of gross domestic product, considered the upper limit of fiscal prudence by many analysts.

Conventional wisdom among local economists suggest that Thailand needs to show growth of at least 5% per year over the next several years to be able to service the public debt and prevent total debt from escalating beyond serviceable levels.

Prime Minister Thaksin Shinawatra and his wife, Khunying Pojamarn, attend a One Tambon, One Product exhibition held in late September at Hua Mark stadium in Bangkok as part of the Thai Rak Thai party's fourth anniversary celebrations.

While low interest rates and plentiful market liquidity has given the government flexibility in refinancing the public debt and reduce foreign obligations, the main task going forward will be not only ensuring overall economic growth, but also revamping the overal.

structure of the tax system and increasing efficiency in state agencies.

Topping the list are state enterprises.

Prime Minister Thaksin Shinawatra noted that improving productivity at state enterprises by just 10% would help increase annual revenues by 100 billion baht, and has ordered each agency to better identify costs between subsidies used for public services and those incurred due to organisational inefficiencies.

Thailand has a total of 62 state enterprises, excluding two independent state enterprises and three state-owned banks.

At the end of fiscal 2001, total assets for state enterprises was 5.6 trillion baht, with liabilities of 5.1 trillion

Revenue totalled 1.3 trillion baht with net profits of 146 billion baht in fiscal 2001, compared with revenue of 1.38 trillion and profits of 77.4 billion the year before.

State enterprises posting the highest profit performance in fiscal 2001 included PTT Plc, with profits of 18.6 billion baht, followed by the Electricity Generating Authority of Thailand at 16.2 billion and the Telephone Organisation of Thailand at 13.2 billion.

Agencies with the highest losses included the State Railway of Thailand at 4.8 billion baht, followed by the Bangkok Mass Transit Authority at 3.4 billion and Bangchak Petroleum at 2.9 billion.

For fiscal 2001, state enterprises posted a return on assets of 2.59% and an return on equity of 27.72%, with a debt-to-equity ratio of 9.7 times.

In contrast, the return on assets for state enterprises in fiscal 2000 was 1.36%, with return on equity of 14.81% and a leveraging ratio of 9.88 times.

Yet higher returns and performance for state enterprises is unlikely to show substantial immediate gains.

One added cost which will come immediately however will be debt service payments of some 20 billion baht per year for the 305 billion baht in savings bonds issued in 2002 as part of a refinancing programme for the Financial Institutions Development Fund.

GROWTH EXPECTATIONS

Finance Ministry officials say that while constraints and concerns do remain, the overall outlook for the economy and the country's budget position has improved measurably from several years ago.

Somchai Sujjapongse, director of the ministry's fiscal policy and planning division, noted that the three main ratings agencies _ Standard and Poor's, Moody's and Fitch _ had all raised their outlooks for the Thai economy in 2002

The main risk factor for 2003 was not domestic issues, but rather the global economy and the potential impact of a US-Iraq war, he said.

With the budget deficit shrinking, tax revenues increasing, foreign reserves now exceeding pre-crisis levels at $38 billion and exports showing positive signs of resiliency in light of the weak global economy, overall signals for 2003 pointed to continued growth on par with 2002.

Dr Somchai said the budget deficit and public debt had already passed its peak, as the government was now committed towards fiscal consolidation and a return to a balanced budget position by 2007 or 2008.

But one key factor towards achieving this goal would be how well the private sector adjusted.

Since the 1997 crisis, growth has been led by fiscal stimulus _ now it was time for the private sector to take the lead in fostering growth, aided by state support from behind.

Dr Somchai argued that community development programmes such as the village investment funds had helped improve the economy's ability to withstand shocks from abroad.

Actual state funds injected into the economy through ``populist'' programmes include 74 billion baht spent through the village funds and 4.7 billion for the People's Bank.

For the three- year farm debt suspension programme, annual costs for the government in terms of foregone interest and principal payments totalled eight billion baht in the first year and six billion for each of the second and third years, although this is likely to decline slightly as some farmers have requested to leave the programme to regain eligibility for new loans from the BAAC.

For the 30-baht health care programme, total spending in fiscal 2002 was 45 billion baht, increasing to 58 billion in fiscal 2003.

As of July, the public debt totalled 2.9 trillion baht, equal to 54.9% of GDP.

Direct government borrowing equalled 25.1% of GDP, with state enterprise debt 17.5% and liabilities of the Financial Institutions Development Fund 12.3%

According to the Finance Ministry, original estimates had the public debt reaching a peak at 59.18% of GDP at the end of fiscal 2002, falling to 58.97% of GDP this year.

Debt service costs as a percentage of budget expenditures is being targeted at no more than 16%.

In fiscal 2002, debt service represented 11.29% of the budget, rising to 14% in fiscal 2003 and reaching an estimated peak of 15.22% to 15.89% for fiscal 2007 and 2008.

The debt service projections are based on an assumption that in addition to the 305 billion baht in savings bonds issued for the FIDF in 2002, an additional 200 billion in bonds will be issued by 2004 and 275 billion in 2006.

But the public debt now is estimated to fall to 55% of GDP in 2003, owing in part to higher state revenues as well as savings gained from the refinancing of foreign debt.

The Finance Ministry plans to refinance $3.75 billion in debt through the end of fiscal 2003, broken down to $1.6 billion in government debt and the rest in state enterprise debt

Refinancing will include prepayments and refinancing foreign liabilities to new domestic borrowing, which will lower interest costs and eliminate foreign exchange risks.

According to ministry projections, by fiscal 2007, state revenues will reach 1.46 trillion baht, with expenditures of 1.5 trillion and a debt service ratio of 11.5% of total spending.