Fate Of The Baht In The Hands Of One Person

[topfield]

The fate of the baht is now effectively in the hands of one person.

She will decide whether most of us can afford to remain in Thailand, pay our rent, buy our dream condo or whatever........... This persons name is K.Tarisa Watanagase .

In response to Thaivisa readers' inquiry as to the current position this weekend for UK expats it is as follows ;

The rate for the pound outside Thailand is now 65.50. The rate here for travellers cheques is 69.90. Even in the baht crisis of May 1997 the difference between the onshore and offshore rate was around half what it is now even though the perils were much higher for Thailand which effectively had run out of foreign exchange.This time around Thailand has 70 billion dollars worth !

So what to do ? The answer is in the mind of K.Tarisa and the best and only was to know what she is intending is to read below her views as extracted from today's The Nation :

" Tarisa said the BOT maintained its objective of stabilising the baht

The BOT governor insisted the difference in baht value between the onshore and offshore markets was an expected result of central-bank measures to curb speculation.

Baht liquidity in the offshore market was limited, owing to the 30-per-cent withholding measure.

"Many mistakenly assume when the baht appreciates in offshore markets, it will strengthen onshore, too. But it doesn't. The BOT has already completely separated the markets.

"The difference in [baht value] in both markets won't be a concern. Finally, baht value in the offshore market will adjust itself," she explained.

Tarisa added that values in offshore markets had strengthened significantly over the past week, as baht liquidity offshore dried up as a result of bank measures preventing non-residents access to baht liquidity - an integral part of the anti-speculation policy."

The best rate this weekend ? Super Rich are incredibly paying a full 70 baht for our pounds ( 50 pound notes)

and the Nationwide's current "immediate deduction rate" is 69.95

[simon43]

She will decide whether most of us can afford to remain in Thailand, pay our rent, buy our dream condo or whatever....

[\quote]

Hmm, a little exaggeration here methinks

Topfield, have a good weekend, don't think too much...

Simon

[altman]

i came here when the $/B was at 40 - 41. anyway you look at it a drop of spending power of 10+% is going to hurt.

i am just a guy that transfers a few thousand $ at a time to live on for a few months, so i don't know anything about the ins and outs of forex but, having said that, i blame it all on GWB and his 'strong dollar' policy. (thankfully he didn't pursue a 'weak dollar' policy!)

and, since the us stock mkts seem to think that the us won't cut interest rates again soon, won't this help to support the $?

[Losangels]

I think the main person behind the instabilty is the fianance minister. He is also the deputy premier and was Tarisa's boss at BOT. I don't have much fate in either one of them to stabalize the Baht. They'll come up with another drastic measure to hold down the value of the Baht and which in turn will cause more severe consequence than when the 30 percent withholding rule was announced.

[danone]

forget your worries.

the baht is de facto "soft-pegged" at the moment.

no more wild fluctuations.

you will see some strengthening, but thank you tarisa and even pridiyathorn, without you guys the whole fx-market here would drive many more crazy.

[taxexile]

so what happens when pounds are transferred by swift from a uk bank to a thai bank and then converted into baht ?

what rate of exchange will be used ?

[papakapbaan]

Could any expert/knowledgeable member here advise please?

Baht is much stronger in "offshore" market than "onshore" market, right?

I guess it's always the case that the same Baht will buy more foreign currency abroad than in Thailand, but the situation is so "distorted" now that some posters suggest quick return trips to Changi/Singapore with suitcases full of Baht??

(To change THB for SGD and then change again into THB in Thailand?)

It is reasonable/feasible?

Anyway, my real concern:

It is reasonable to keep important amounts of Baht in Thailand??

("No, never", maybe. But anyway at least some amounts are needed for visa purposes/immediate security)

Could all this be the prelude to a new huge devaluation??

Like a currency Tsunami where the sea recedes first to submerge later?

(Of course it all depends from the point of view of the observer. I am in the "middle" BTW: with monthly payments from abroad and relatively important savings here in THB).

[Jingthing]

The question about a devaluation is a good question, because this sort of thing does happen. Examples I can think of include Mexico and Argentina. Does someone know the history of this in Thailand? How many official devaluations, if any, have happened in Thailand in the last 50 years? Am I correct in thinking that the crash around 1998 from 25 per dollar to about 50 per dollar was a natural market crash and not a government devaluation (same effect anyhow)?

I personally have lots of baht in Thailand and am seriously wondering if it is a good time right now to spend alot of it NOW on a car, LCD screen tv, etc. rather than risk a devaluation.

Edited January 27, 2007 by Jingthing

[JimGant]

so what happens when pounds are transferred by swift from a uk bank to a thai bank and then converted into baht ?

I would think you'd get the favorable (onshore) rate, since the conversion into baht is being done onshore. But, I'm no expert......

Conversely, my ATM and credit cards (issued by a US bank) are most definitely reflecting the unfavorable 'offshore' rate, as apparently, the 'interbank exchange rate' is based on offshore rates.

Ho hum.

[cclub75]

The fate of the baht is now effectively in the hands of one person.

This persons name is K.Tarisa Watanagase .

Oh la la, I think you give her way too much credit...

Day after day, she shows to the world only one thing :

-I'm right

-I've anticipated everything

-I'm in control

-there is no problem

It's typically thai, I agree. But Tarisa put it at the maximum....

And the reality is totally different : since december, the BOT is running behind. They take decisions in panic mode. They are unable to think ahead like a chess player.

It's obvious in her last statement

-"was an expected result"

-"Many mistakenly assume when the baht appreciates in offshore markets, it will strengthen onshore, too. But it doesn't. "

-"The difference in [baht value] in both markets won't be a concern. Finally, baht value in the offshore market will adjust itself,"

She should remember 1997... A that time too, we had a stupid... a thai BOT if I may say, there was no problem at all, there was a big difference in value between off and on shore markets, everything was under control, and was anticipated, and they would prevail against the "ugly farang speculators".

You don't ffxxx with the markets.

An other proof : they didn't think about the problem of thai companies borrowing money off shore. It took miss Tarisa 1 month to aknowledge that there was a problem related to the 30 % reserve.

-same for stock market

-and all the other "exemptions".

As I said previously, soon all transactions are going to be exempted, while they will keep the capital control.

I mean : it's level zero. Create a system of reserve, okay why not, but the least you can do is when you announce it officially, it's to state clearly what you intend to do, and list all the usefull exemptions... Do your homework in a way !

But BOT is working in a different way : they are looking, eventually, at the consequences after. It's panic mode, it's stupid mode. And for a central bank... it's a real killing.

Tarisa doesn't have the level. And this is why, speculators, who smell the blood, are coming.

It's easier to attack a weak target.

Now... I don't say that Thailand couldn't take a real and extreme "unconventional" decision next week... (devaluation).

Edited January 27, 2007 by cclub75

[sfokevin]

Can someone explain how the BOT could effect a significant devaluation of its currency? Ms Tarisa can not even keep it up to 36 at this point...

[peter991]

I hope things improve as the exchange rate between the Australian Dollar (AUD) and Thai Baht (THB) has also taken a major nose-dive.

Thai baht exchange rate to Australian Dollar

Just nudging 30THB = $AUD1 two years ago, about the same Jan 2006, current (27 Jan 2007) rate is 25.873THB = $AUD1.

Peter

[topfield]

May I be permitted to clear up a few misunderstandings regarding the word DEVALUATION used in the context of the current situation, giving examples in non technical terms which people will all understand.

In 1967 the dollar was pegged at 2.80 to the pound where it had been since 1948. Due to huge economic pressure Harold Wilson DEVALUED the pound to 2.40.

On July 2 1997 the Thai Prime Minister Chevalit Yongchaiyud allowed the baht to FLOAT due to huge speculation and a total depletion of reserves. Previously it had been pegged to the dollar at 25 to the dollar

In the late 50's the German mark which had been pegged was REVALUED from 11 to the pound to 10 to the pound ie its rate was allowed to rise. This repeated itself in the 60's and the same happened with the Yen and Swiss Franc.

Now to the current situation.

Since the value of the baht is not fixed, it can be neither devalued nor revalued !

What is currently happening is a managed float . Up to a few weeks ago the the float was managed on both onshore and offshore markets ie in Thailand and outside Thailand. In the last week or so, dealers outside Thailand have 'revolted' and refused to accept the management by the BOT . The market ...or speculators if you wish, has put its own value on the baht............ to the consternation of the BOT.

Trust the above simple explanation will help those having no understanding of the forex markets but who are nevertheless directly affected by it.

[NB I am not a trained or qualified economist nor do I hold a degree in Economics ..only a Diploma from the LSE]

[wasabi]

http://www.google.com/search?q=1+usd+in+th...G=Google+Search

[danone]

its a completely different situation to 97.

why devaluate a currency when there too much demand?

in 97 there was absolutely no baht-demand, debts abroad in hard currency broke the neck of the baht.

back then it was a huge capital outflow. now, if you like it or not, there is a baht demand.

the only hard thing they may do in the weeks to come is to officially peg the baht.

like the ringgit, the hong kong dollar, the yuan.

Edited January 27, 2007 by danone

[Jingthing]

Thanks much for that Topfield.

It makes sense. When the Argie peso collapsed, it had previously been pegged 1 to 1 with the US dollar. They dropped the peg, and then the currency lost 2/3 of its value overnight. They also froze bank accounts and stole people's money.

[Losangels]

Its just a matter of time before the country's reserve to dwindle down like back in 1997. If Terisa is still stubborn(sp?) to continue to defend the Baht. She and her advisors are in no match with the international forex traders and I believe she is smart enough to realize that but reluctant to admit it. The forex exchange lost from defending the Baht is at 207 Bil. Baht out of the total of 2.37 tril. Baht (still) remaining foreign exchange reserve, a loss of around 9 percent. If she continue defending and the off shore price differences widen, we'll soon have the the currency printing machine at BOT working overtime.

[Jingthing]

I am still confused. The Thais were defending the baht against getting STRONGER, not against getting weaker. In what way is that similar to 1997 when they dropped a peg, let it float, and then it collapsed? Now, when they drop support, it gets STRONGER, not weaker.

What am I missing about this?

How does the dramatic strengthening of the baht foretell its collapse?

Edited January 27, 2007 by Jingthing

[danone]

Its just a matter of time before the country's reserve to dwindle down like back in 1997. If Terisa is still stubborn(sp?) to continue to defend the Baht. She and her advisors are in no match with the international forex traders and I believe she is smart enough to realize that but reluctant to admit it. The forex exchange lost from defending the Baht is at 207 Bil. Baht out of the total of 2.37 tril. Baht (still) remaining foreign exchange reserve, a loss of around 9 percent. If she continue defending and the off shore price differences widen, we'll soon have the the currency printing machine at BOT working overtime.

completely wrong thinking. if they sell baht now they dont lose like back then.

back then they had to buy baht to strengthen it, which was a futile attempt to salvage a sinking ship.

now, they should have to sell baht to make it weaker, which would give them even greater foreign reserves.

furthermore with the 30 percent witholding tax they can build a substantial war chest to defend the baht.

[Losangels]

You may be right danone, however the reserve is mostly in US$, if the Baht gains then the reserve which is in Dollars lose relative to the Baht. Where does BOT get additonal Baht? By borrowing(at a cost) and/or by printing to increase supply which in tun will lower its value. Last I heard they are no new money coming into Thailand at this time therefore the 30 percent witholding would have minimal use to defend the Baht.

[Maestro]

Its just a matter of time before the country's reserve to dwindle down like back in 1997. If Terisa is still stubborn(sp?) to continue to defend the Baht.

The Governor of the Bank of Thailand is not defending the Baht; she is making efforts to weaken it.

She is buying dollars, and perhaps also other foreign currency. The way I understand the mechanism, this means that the country’s foreign reserves are increasing, not dwindling. It also means that the Baht will probably still get stronger unless, of course, Thailand starts to print new money like mad.

--

Maestro

[papakapbaan]

OK. The situation is not the same as in 1997 (it's what I thought indeed).

In 1997 the BOT was buying Baht to strengthen it when Thai exports were weak. Now the BOT would like to keep a weak Baht to maintain strong exports.

However... there are similarities with 1997, no?

Again we have a "fight" between the BOT and speculators/markets.

Again the BOT is distorting the market mechanisms and it will allow people in the know (and with the means) to gain from the on/offshore rates differential.

We have a potential for snowball effets, no?

At the end: who knows??

This governement did not hesitate to show its "colors" recently: they care about the real economy and do not care much about the markets. They support exports. They want a weak Baht.

I actually used the term DEVALUTION above with the meaning of a mere "reduction of value" more than a "governemental intervention".

But who can be sure that the next move from the BOT/Thai governement will not be a new drastic measure to weaken the Baht?

Does it really matter that technically it's not a devaluation? (Since the currency is not pegged, OK)

(The currency may not be pegged, it is "closely monitored", let's say.)

I mean: they can do silly things, no doubt, he?! :-0

What could they do with the potential to drastically weaken the Baht because they are pushed in the corner by speculators??

(Do they have the means?)

Again: is it safe to keep your Baht next week?? ;-0

[Naam]

Does someone know the history of this in Thailand? How many official devaluations, if any, have happened in Thailand in the last 50 years? Am I correct in thinking that the crash around 1998 from 25 per dollar to about 50 per dollar was a natural market crash and not a government devaluation (same effect anyhow)?

my personal history concerning THB goes back to 1973 when the Baht was pegged to the USD at 20. this lasted till november 1984 when the Baht was devalued and the new rate set at 25 to the dollar.

in mid 1997 the developing economic crisis in Asia forced several central banks (not only Thailand's) to let their currencies float according to offer and demand.

[Naam]

my personal history concerning THB goes back to 1973 when the Baht was pegged to the USD at 20.

addendum: in the 70s and early 80s it was no problem to pay in Bangkok with US-Dollars even in small shops.

[DFCarlson]

I mean: they can do silly things, no doubt, he?!

What could they do with the potential to drastically weaken the Baht because they are pushed in the corner by speculators??

Stay tuned for the next exciting episode in this soap opera, scheduled to air first thing Monday morning!

My guess is they're meeting furiously this weekend to decide what to do next. As far as I'm concerned, it's anybody's guess.

Edited January 27, 2007 by DFCarlson

[britmaveric]

I think a peg is coming, least thats how I see it.

[LaoPo]

My guess is they're meeting furiously this weekend to decide what to do next.

Agree on that. The BoT/Ministry of Finance are in a extremely difficult position as of 'what to do'.

My view:

1. Foreign institutions/stockbuyers are buying Baht on a large scale because the stockmarket went down some 10-15% since mid-december. On top of that Thai -individual- stocks were already heavily undervalued before mid-december. That's why these institutions need Baht to buy stocks.

Remember that Thai stocks are excempted from the new 30% rule. That means the institutions can buy and sell Thai stocks whenever they want.

Therefore these institutions buy their Baht at the Forex traders (a.o. London/New York/Tokyo/Singapore) and since the demand is very high the Baht goes up.

Since the Baht isn't pegged it's a real tough game for the Forex guys and enormous amounts go back and forth but since the institutional demand for baht (buying Thai stocks) the Baht keeps rising.

For the institutions it's a matter of timing when to buy Thai stocks.....................and: when to sell them again at a profit; for them it's a simple calculation since they know at what price they bought their Baht (already) and stocks.

2. There is another point to the situation the BoT/Ministry of Finance are in and that's the political situation.

The International financial world isn't really impressed what happened since the September-Coup d'Etat but they're willing (of course!) to take advantage of the low Thai stocks since it's completely legal for them to buy and sell stocks.

The BoT can't do anything about that; if they would, (like implementing another law) the stockmarket would completely collapse and a lot more than the 10-15% in mid-december !

Thailand would lose track, face and confidence in the -financial- world.

Results?: The Baht would be dumped on an enormous scale and the Baht will go down like a rocket.

Since that's an almost impossible scenario for the BoT/Ministry of Finance there's not much they can do other than buying foreign currencies on a -very- large scale, like the US$, GBP, Euro and Yen in order to bring the Baht down.

The other option is 'printing' Baht and keep printing but that's also a horrible scenario for the future.

They have to do something because:

3. The expensive Baht is extremely bad for the entire export-business as well as tourism -both will decline heavily with an expensive Baht-; 2 main sources of income for Thailand.

But, Thailand is not alone; South Korea's Won is very high also and is effecting the Export-business (and therefore the profits) already on a large scale....as well as the Yen and the still overvalued Chinese Yuan.

All in all difficult times for Thailand.

Let's see what happens on Monday January 29th.....

LaoPo

[Jingthing]

Regarding a peg of the baht, which if it happens I would guess would be about 35 per USD, why is that such a bad idea? China doesn't allow free float of their currency, and an argument can be made that Thailand is now suffering from speculation that is largely driven by the real strength of the Yuan. Now a peg that is way way off, like when the Argentina Peso was 1 to 1 with the dollar when it was really worth 1/3 of a dollar is dangerous, what's wrong with a less radical peg?

[britmaveric]

Dunno prob more like 38-40, need keep competitive for exports where competition is china, taiwan, vietnam ect

[Jingthing]

Dunno prob more like 38-40, need keep competitive for exports where competition is china, taiwan, vietnam ect

Do I hear 50? I like it.