| Abstract | The important mechanisms that government used in control the behavior of an
economy are through fiscal and monetary policies. Due to economic slow down and flotation
of the baht, it strongly effected the government budget and official reserve. Eventually, the
government had to request the aid from International Monetary Fund (IMF), but the
government has to follow the criteria set by IMF, especially in maintaining budget surplus 1
per cent of GDP and in setting interest rate at the rate of 15-20 per cent. The high interest rate
and the pressure of increasing more capital of the financial institution and bank by the Bank of
Thailand made the business more difficult to make profit. Collapse of many business and a
large number of unemployment were the result. For the government, the budget was cut three
times from 982,000 million baht to 800,000 million baht. The cut down on spending, the
government tried not to jeopardize the education, public health, people's welfare and public
infrastructure programs. In addition, the government postponed the unnecessary projects and
invited the private company to participate more in massive projects. However, the government
could not maintain the budget surplus of 1 per cent of GDP, and the government needed to
collect 100-120 million baht more tax. The economic situation seemed to be more severe than
IMF and Thai government expected then, in the mid of January, IMF sent the officers to
review the economic situation in Thailand and revised the third letter of intent before
releasing the new package to Thailand. In the third letter of intent, the IMF relaxed the budget
surplus 1 per cent of GDP to allow the budget deficit of 2 per cent of GDP. However, the
government had to increase the benzene tax 1 baht per liter and to increase the excise ~ax in
order to maintain enough official reserve from which the short term debt amounts to 40
million baht and the problem of the issuing virtually unlimited lines of credit through the
Financial Institutions Development Fund (FIDF) must be resolved. These caused the
government to fall into difficulty situation .. In addition, the government could inject upto 150
billion baht to the economic system in order to solve the liquidity problem. In order to raise
more revenues to solve this financial crisis. The government should find the way to prevent
the tax dodgers and tax haven, which the government loses the revenue amount to 100 billion
baht each year, by improving, strengthening the law and increasing the human resource for
monitoring and preventing the tax evasion. If it is successful, in the following year, the budget
surplus is not difficult to achieve and it will increase the stability of the economy, prevent the
increase of inflation and also restore the confidence of the investors . |