Vejjajiva, who this week became the country’s third premier in four months, is increasing spending amid growing protests by farmers disgruntled by tumbling commodity prices. Export growth is being stunted by a global recession, and tourism income dropped after demonstrators closed Bangkok’s main airports a month ago.

The economy may contract in the first three months of 2009 after declining between 2 percent and 3 percent this quarter, according to the Finance Ministry. The last time the economy shrank two straight quarters, the technical definition of

a recession, was in the six months ended March 1999.

“That 300 billion baht is a lot of money,” Pornthep Jubandhu, an economist at SCB Securities Ltd., said by telephone from Bangkok. “Usually, the more the merrier, but the government has to be careful about disbursing and spending.”

Finance Minister Korn Chatikavanij said this week that government spending may cause Thailand to run a budget deficit of as much as 400 billion baht in fiscal 2010. That compares with a proposed shortfall of 350 billion baht on the 1.84-trillion-baht budget for the fiscal year ending September 30, 2009. Thailand’s public debt to gross domestic product ratio is “relatively low” at 35 percent, he said, providing some fiscal flexibility.

Vejjajiva will make a formal policy address to parliament on December 29-30.

Chatikavanij said December 23 the government may spend a further 80 billion baht on top of the 100 billion in additional funds for the current fiscal year approved by the former government last month.

Source: Bloomberg