More About The Baht

[Vespa]

Baht high 'and headed higher'

Bkk Post

(Agencies)

The Thai baht has become the world's best performing currency this year, and has increased to about 33 per US dollar on international markets.

The currency will rise to 32.50 baht per dollar in three months and increase to 32 per dollar by year-end, said a weekend analysis. At 4:30 this morning Thailand time, the currency was trading at 33.425 on the New York market.

Currency analysts believe the Thai baht will rally even more. International investors are likely to increase purchases of local stocks after the lifting of martial law, according to Mellon Financial Corp.

Samarjit Shankar, director of global strategy for the foreign exchange group in Boston at Mellon Financial Corp, said on the weekend, "There has been a relief among investors that the economic prospects are not hampered by political instability. The outlook looks favourable for the baht."

"Favourable" as in - the baht is headed for exchange rates not seen since 1997.

Last week's official endorsement of the lifting of martial law in 41 of the 76 provinces by His Majesty the King has given a huge lift to the baht.

The central bank triggered a slump in local stocks, bonds and the currency last month when it imposed capital controls, then reversed some of the measures a day later.

Overseas investors bought 508 million baht ($15.2 million) more of Thai stocks than they sold, the 12th straight day of net purchases, according to Stock Exchange of Thailand data released last Friday.

"The fundamentals are reasonably strong in Thailand. The currency is likely to remain firm," said Lawrence Goodman, a former U.S. Treasury official who's now a managing director of global emerging market foreign exchange strategy for Bank of America Corp. in New York. "The relaxation of the restriction is certainly beneficial to the Thai baht."

Thailand's economy will expand as much as 5 percent in 2007, driven by exports, Prime Minister Surayud Chulanont said this month. Finance Minister Pridiyathorn Devakula on Jan. 18 said growth was "at least 5 per cent" last year.

Probably today, the Bank of Thailand will lift restrictions on foreign currency loans that are hedged for at least a year.

[ludosiam]

As a small business owner doing export it's amzing to hear people like Khun Tarisa Watanagase telling me not to worry about the exchange rate, glad to hear she's in full control of everything.

However, maybe she will compensate for the almost 20% reduction in profit we have to bear? Profitable business with 50 people working has turned into net loss now, negotiations with customers aren't that successful yet and there's a possibility of closing down soonest.

And I am pretty sure that this isn't a single company that has been hurt, there are thousands of jobs at stake here in Thailand right now. Increasing prices is an easy answer, but the easy reply from customers will be reduced purchases and searching for other options in the region.

[thaihome]

As a small business owner doing export it's amzing to hear people like Khun Tarisa Watanagase telling me not to worry about the exchange rate, glad to hear she's in full control of everything.

However, maybe she will compensate for the almost 20% reduction in profit we have to bear? Profitable business with 50 people working has turned into net loss now, negotiations with customers aren't that successful yet and there's a possibility of closing down soonest.

And I am pretty sure that this isn't a single company that has been hurt, there are thousands of jobs at stake here in Thailand right now. Increasing prices is an easy answer, but the easy reply from customers will be reduced purchases and searching for other options in the region.

I'm just curious what you expect Khun Tarisa to do and why it is her fault?

TH

[ludosiam]

I'm just curious what you expect Khun Tarisa to do and why it is her fault?

TH

I'm not saying that it's Khun Tarisa's fault - I believe there are several and knowledgable people doing decisions and the money market react's on several economical facts.

But it's no help if decicion maker are trying to avoid reality by giving unrealistic statements, better prepare for consequences caused by changing conditions.

We have had too many decisions made and scrapped within days regarding the financial and investment sector, most companies cannot react on such a short notice.

The way i see it Thailand's time of cheap products and labour could soon be over, so the only way out is producing value added, high tech goods for which we will need better qualified employees, for which they need to have good education etc....

Another amazing aspect is that fuel prices haven't dropped in the last few days!

[wolfmanjack]

As a small business owner doing export it's amzing to hear people like Khun Tarisa Watanagase telling me not to worry about the exchange rate, glad to hear she's in full control of everything.

However, maybe she will compensate for the almost 20% reduction in profit we have to bear? Profitable business with 50 people working has turned into net loss now, negotiations with customers aren't that successful yet and there's a possibility of closing down soonest.

And I am pretty sure that this isn't a single company that has been hurt, there are thousands of jobs at stake here in Thailand right now. Increasing prices is an easy answer, but the easy reply from customers will be reduced purchases and searching for other options in the region.

You got that right. I am a small exporter also and most of my customers are complaining. i haven't changed my prices in several years and the revenue department still doesn't understand why profits are down.

[ludosiam]

You got that right. I am a small exporter also and most of my customers are complaining. i haven't changed my prices in several years and the revenue department still doesn't understand why profits are down.

will be interesting when this years annual visa extension comes. In theory a company must have the amount equivalent of 1 year's salary for every foreign employee in cash. If we continue like this we won't.

[thaihome]

I'm not saying that it's Khun Tarisa's fault - I believe there are several and knowledgable people doing decisions and the money market react's on several economical facts.

But it's no help if decicion maker are trying to avoid reality by giving unrealistic statements, better prepare for consequences caused by changing conditions.

We have had too many decisions made and scrapped within days regarding the financial and investment sector, most companies cannot react on such a short notice.

The way i see it Thailand's time of cheap products and labour could soon be over, so the only way out is producing value added, high tech goods for which we will need better qualified employees, for which they need to have good education etc....

Another amazing aspect is that fuel prices haven't dropped in the last few days!

I made the comment since you suggested she should compensate you for lost profit due to the rise in Baht. I guess it was a wrong assumption on my part that since you wanted her to compensate you, you were placing some blame on her. It would seem you want her to compensate you for some other reason, maybe for making hopeful statements that the rise will not hurt the economy?

Seriously, the rise in the baht is a big problem, but these days these is not a lot a central bank can do to fight speculation, other than making hopeful statements or formulating drastic currency controls that they get slammed for.

If nothing else, the BOT has learned not to squander the reserves trying to influence the market.

TH

[ludosiam]

TH,

that was actually a little sarcasm, of course I don't expect anybody to compensate nor would I blame a politician if I made a wrong decision based on his / her comments, it's up to ourselfes to verify facts before deciding.

Actually I wrote my comment out of frustration when listening to politicians in general painting a rosy future while knowing the opposite could happen soon. And this isn't a Thai - specific problem, politicians are very concerned about party and themselves, so warnings about future downslopes are very rare these days.

Anyway, I'm getting too far from the actual topic i believe, haha. The Baht got a little better today, so let's wait and see - hoping I'm not allowed anymore by my customers, told me to stick to facts

[Old Man River]

I'm not saying that it's Khun Tarisa's fault - I believe there are several and knowledgable people doing decisions and the money market react's on several economical facts.

But it's no help if decicion maker are trying to avoid reality by giving unrealistic statements, better prepare for consequences caused by changing conditions.

We have had too many decisions made and scrapped within days regarding the financial and investment sector, most companies cannot react on such a short notice.

The way i see it Thailand's time of cheap products and labour could soon be over, so the only way out is producing value added, high tech goods for which we will need better qualified employees, for which they need to have good education etc....

Another amazing aspect is that fuel prices haven't dropped in the last few days!

Seriously, the rise in the baht is a big problem, but these days these is not a lot a central bank can do to fight speculation, other than making hopeful statements or formulating drastic currency controls that they get slammed for.

If nothing else, the BOT has learned not to squander the reserves trying to influence the market.

TH

That is spot on. The reason for capital controls in the first place was to help the country's exporters.

[Old Man River]

TH,

Actually I wrote my comment out of frustration when listening to politicians in general painting a rosy future while knowing the opposite could happen soon. And this isn't a Thai - specific problem, politicians are very concerned about party and themselves, so warnings about future downslopes are very rare these days.

Ludosiam, here is the fear: Consumer spending is down and exports may weaken. The only way to counter this is for the government to spend, spend, spend, and they don't want to do that. Instead, they have been cutting project spending. Hence, if the BOT cannot find a way to fight off speculators trying to get the THB to appreciate, exports will tank and the economy will head in that direction. If that happens, the THB will weaken because economic fundamentals will be awful.

If you think you have sleepless nights imagine how tough it is for the BOT Governor?

[ludosiam]

Ludosiam, here is the fear: Consumer spending is down and exports may weaken. The only way to counter this is for the government to spend, spend, spend, and they don't want to do that. Instead, they have been cutting project spending. Hence, if the BOT cannot find a way to fight off speculators trying to get the THB to appreciate, exports will tank and the economy will head in that direction. If that happens, the THB will weaken because economic fundamentals will be awful.

If you think you have sleepless nights imagine how tough it is for the BOT Governor?

OMR, i fully agree that BOT faces a complex problem to solve and I have to admit that I am not that bright in financial mechanisms as I am an engineer "forced" to run a company. But it should be possible to control speculators somehow, maybe just start to look who would benefit most of a strong THB. If I remember well there is a certain person that has plenty of THB sitting in Thailand but needs foreign currency to pay for his round trips. With the huge gap in on / offshore market's yesterday and rumours (just rumours) about 2 planes full of suitcases leaving Thailand last year, that would make a huge profit overseas!

[Old Man River]

Ludosiam, here is the fear: Consumer spending is down and exports may weaken. The only way to counter this is for the government to spend, spend, spend, and they don't want to do that. Instead, they have been cutting project spending. Hence, if the BOT cannot find a way to fight off speculators trying to get the THB to appreciate, exports will tank and the economy will head in that direction. If that happens, the THB will weaken because economic fundamentals will be awful.

If you think you have sleepless nights imagine how tough it is for the BOT Governor?

OMR, i fully agree that BOT faces a complex problem to solve and I have to admit that I am not that bright in financial mechanisms as I am an engineer "forced" to run a company. But it should be possible to control speculators somehow, maybe just start to look who would benefit most of a strong THB. If I remember well there is a certain person that has plenty of THB sitting in Thailand but needs foreign currency to pay for his round trips. With the huge gap in on / offshore market's yesterday and rumours (just rumours) about 2 planes full of suitcases leaving Thailand last year, that would make a huge profit overseas!

Now that is a good idea. Seize Thaksin's money and sell the THB to weaken it. For sure it wouldn't be using any of the country's reserves.

There is an alternative to the "draconian" reserve requirements. It is what Malaysia did during the 1997 period and is more draconian. The government would set the rate and it would no longer be based on supply and demand. The currency would not be freely convertible. It is risky if you get it wrong, but Malaysia did it successfully, so I would have to think that Tarisa is evaluating it. It would not be well received internationally.