Businesses Want The Baht Held To 35.50 To The Usd

[retirednavyman]

A very interesting article I found reading pattayamail. Read on:

"Businesses want baht held at 35.50 to dollar

A recent poll has found that most business persons want the Thai currency to be kept from rising any higher than 35.50 baht to the US dollar, that the government promptly reimburse cash out of a Bt5 billion fund for Small- and Medium-Enterprise (SME) projects and that a general election be held sooner rather than later. According to the poll recently conducted by the Thai Chamber of Commerce University and involving a cross section of over 800 business people, most respondents voiced concern about the rising baht and said that measures should be taken to prevent it from strengthening to less than 35 baht to the dollar, otherwise they fear their businesses, especially those involving the export industry, would be immensely damaged. Most of those surveyed suggested that the government should promptly repay foreign debts and cut interest rates in order that more liquidity would flow from banks to small - and medium sized enterprises nationwide. The government was also advised to promptly reimburse cash out of the Bt5 billion fund earmarked to reinvigorate the economy and provide financial support for varied SME projects. The respondents suggested that the diesel price be maintained at 28 baht a litre and they believed that the national economic growth would range between 3.5 to 4.5 per cent throughout this year. According to the poll, the domestic consumption and investment projects could be expected to remain sluggish until the political situation unfolds, with a general election expected by the end of the year. However, 56 per cent of the respondents said they had no imminent plans to lay off their employees, though they had been considerably affected by the rising baht. (TNA)"

Think the government would comply?

Tell me your thoughts

[Naam]

A very interesting article I found reading pattayamail. Read on:

"Businesses want baht held at 35.50 to dollar

Tell me your thoughts

my thoughts are that Pattaya Mail is using wrong diction. since months the Baht is stronger than 35.50 vs. USD. why the expression "held"?

[Thaddeus]

Ask any business man what he want's and you will get a politely crafted version of his personal utopia. In the current climate many of those utopia's will share common desires.

Will this government or the next one do anything to appease those desires ...... yes, if it suits them.

[Totster]

Moved to "Jobs, economy, banking, business, investment in Thailand"

Totster

[PeaceBlondie]

As Dr. Naam points out, it appears that article or the survey is outdated by several months. We are now at a level of defending 33 baht, not 35.50.

[xbusman]

I dont think its a matter of "what is" the baht, but instead "what it has to be" for business to survive.

Generally speaking, for exports, 35.5 is pretty much the break even point. Exporters can survive at that level and remain competitive in the world market. Below that, the only survivors will be the major internationals who import all their raw materials and just utilize labor. Because of the capital investment, they just take the hit over increased costs compared to China, up to a point. Case in point is the recent closings of manufacturers in New Zealand relocating to Thailand and recent closings in Thailand relocating in Vietnam and China.

Under 35.5 and things get progressively uglier on a Richter scale. I think critical mass will be reached around 31 or maybe as low as 30, at that point you will start to see even the big internationals packing up and heading out. With any luck, we wont reach that point as it is very hard to get them back.

[britmaveric]

40-41 is acceptable target range, soon I hope!!!

[xbusman]

Well we might see some GDP growth if the days of above 40 ever come back. Until then, its a downward slide unless the complete economic structure is able to reinvent itself.

[tijnebijn]

Ofcourse we all would like to see rather a weak baht then a strong one .

But in the business corner prespective it is that a too strong baht is bad for the competitive price they

can offer to their customers . China for example is holding their currency to a certain degree , their is much pressure on China

to leave this , which will not entirely happen quick . But when the yuan is breaking through

and getting stronger , the baht will not feel the pressure to go up as well . The competition their price is going up so it will be okay for the baht to appreciate as well . Well what will happen ? No more talking about a too strong baht .

But yeah there could be many other factors also why in the future currencies will go up or down , a bubble in china will do .

[solo siam]

I like the strong baht personally, people on here seem to be very "the baht must be weak", mostly because the exchange rate has cut into their income.

A weak currency promotes complacency, companies are competetive through the exchange rate alone - Obviously this can't happen forever, as part of a developing nations economy grows I think it's exporters must learn to be more competetive. In the short term this will lead no doubt to job loss and short term frustration, however in the long term as the most well organised and competetive companies rise to the top they actually become truly globally competetive, making for a more efficient economy.

[onethailand]

The biggest business sectors in Thailand are tourism, agriculture and manufacturing.

A strong baht means it's more expensive for tourists to come to Thailand. Result: less tourists/less income into Thai economy.

A strong baht means that the agriculture and manufacturing sectors, which export most of their product, must raise their US$ prices in order to survive. It also means less overseas investment into local industry. Result: less exports/less income into Thai economy.

Is it any wonder that business wants a weaker baht? The only beneficiaries of a strong baht are importers, and people who are wealthy enough to travel overseas. Local people who don't travel won't benefit because prices are not going to go down on every day good.

The global economy is irrelevant to most people. Only the local economy counts for anything - and when there is stress on the local economy, it affects everyone. There isn't stress when the baht is weak.

Basically, the baht's appreciation has been too fast. No one would have a major problem if the baht appreciated slowly.

In my case - I get paid in foreign currency because I work for an overseas corporation. My salary is effectively worth 7% less than when I agreed the contract becaue I still have to settle bills in baht, plus my salary is converted into baht upon arrival. The salary is large enough that it has a signficant impact on my ability to keep my head above water.

[solo siam]

Your stance on Tourism doesn't take into consideration that premium Holiday destinations are almost never chosen on price alone.

If the global economy is irrelevant to most people, I'm guessing you mean down to grass-roots farmers etc... then surely a strong baht is a good thing, less expensive oil/energy, same amount of rice harvested, local rice price in baht unchanged.

[onethailand]

Your stance on Tourism doesn't take into consideration that premium Holiday destinations are almost never chosen on price alone.

Not all of Thailand is considered a premium destination, unfortunately. On top of that, a significant number of tourists come on tours from other Asian countries. I'm talking about the general perspective, as opposed to a particular group of people.

If the global economy is irrelevant to most people, I'm guessing you mean down to grass-roots farmers etc... then surely a strong baht is a good thing, less expensive oil/energy, same amount of rice harvested, local rice price in baht unchanged.

I mean most people, whether they be farmers, factory workers, office workers, etc. Less expensive oil (in baht terms) does not mean that their energy bills come down - do you see the PEA lowering its cost per unit? And even if they did, it's going to be rounded off in such a way that most people will hardly feel the difference.

Rice for local consumption will still cost the same, the rice farmers are not going to lower their price per kilo either. People won't notice that either. Hard to believe that the local economy will see deflation because of stronger baht - but watch how fast inflation takes hold when the baht weakens. Even if the baht were to weaken back to 40 baht, we'd still see significant inflation.

However, rice for export - which is a huge amount - will be worth less - and this will directly impact on rice farmers.

[samran]

Think the government would comply?

Tell me your thoughts

I think we should dispel the myth once and for all that governments can be terribly effective at controlling currencies.

Sure, it can be done, but not without side effects. Hold the baht steady, and you are forced to have artificially high/low interest rates to keep the currency at a certain level which can lead to unnaturally depressed/over heated economy.

It leads to all sorts of messy rules and regulations which make it hard for people to get on with their own business. After the 1997 crash to Thai government (up until very recently) was falling over itself to STOP people sending money offshore - for fear it would weaken the baht. Now, as it is getting to strong, they are doing their darndest to encourage people not to hold baht.

It is a waste of time and resources.

I like to think of a floating currency as a bit of a shock absorber for an economy. You let the currency float, let it tell you a thing or two about how good/bad your economy is doing, and then use interest rates, microeconomic reform and fiscal policy to manage your economy so it grows.

But, the people calling for the baht to be XX.XX against the dollar are no more than self interested parties, hoping that the government can do something to protect their comfy position, rather than being creative and building businesses which are a bit more resliant to the baht moving up or down!

[Cyberstar]

Generally speaking, for exports, 35.5 is pretty much the break even point. Exporters can survive at that level and remain competitive in the world market. Below that, the only survivors will be the major internationals ...

Under 35.5 and things get progressively uglier on a Richter scale. I think critical mass will be reached around 31 or maybe as low as 30, at that point you will start to see even the big internationals packing up and heading out ...

These statements, most certainly indicates a real expert ... However, as it stands, just about anyone could've written the same figures (Personally, I'm capable of writing: 'Break even = 35.8 .... Critical mass = 28.4).

Admittedly, I don't have any argument for my figures --- do you have any for yours?

[solo siam]

Yes, why is 35.5 the break even point, that would mean exporters have historically only ran a maximum profit of 12-15% on their exported produce or so in the recent years.

Also part of the cost of exporting is the cost of transport, which is lowered as the baht strengthened against the dollar, perhaps not as much as the difference in currency, but factor in that most business items are also imported (computers, electronics, machinery) and will also be cheaper.

I'm not sure how the auto industry works here, but I assumed that they brought in parts from other countries and assembled them here for export, so a strong baht helps substantially if that is the case.

[retirednavyman]

A very interesting article I found reading pattayamail. Read on:

"Businesses want baht held at 35.50 to dollar

Tell me your thoughts

my thoughts are that Pattaya Mail is using wrong diction. since months the Baht is stronger than 35.50 vs. USD. why the expression "held"?

I'm just the messenger, so a cliche comes to mind "Don't shoot the messenger"

[retirednavyman]

As Dr. Naam points out, it appears that article or the survey is outdated by several months. We are now at a level of defending 33 baht, not 35.50.

Don't see how it could be outdated since the article appeared in yesterday's edition of pattaya mail, my eyes don't deceive me!

[ray23]

Anyone notice that it really doesn't name the source. But there are factiosn here that really don't want to baht supported

The baht could appreciate more as the USD weakens forecast:

Opinion Watchdog :US dollar could slip another 20 per cent over next few years

Watchdog :US dollar could slip another 20 per cent over next few years

A US-based fund manager told me the other day that the greenback could depreciate by another 20 per cent on a trade basis in the next few years, implying that Asian trading currencies, including the baht, could continue their upward trend. In short, the market believes in the dollar's weakness due to the United States' triple deficits - in its budget, current account, and trade - while it also believes that several Asian units are undervalued.

Published on July 29, 2007

This New York-based fund manager, who preferred not to be named, recently learned that food is surprisingly cheap in Bangkok by Big Apple standards. For example, a decent dinner for five or six people at a middle-class Bangkok restaurant costs about Bt500, or just Bt100 (US$3.03) per head. For this price you would probably get just a few bites of a Big Mac meal in New York.

His rationale is that the baht has the potential to appreciate significantly in the near and medium term. As for the dollar, he simply shared the opinion that the global economy shouldn't depend forever on the US to be the world's single biggest market for all manufactured goods.

It's probably time now for the US to sell more to the rest of the world, especially to China, the world's biggest exporter. In the ongoing exchange-rate politicking, the Chinese yuan is therefore the primary target for further appreciation, but so far the strengthening of the currency has been less than expected.

So the market is awaiting a greater appreciation in the Chinese unit, after which other Asian currencies, including the baht, can be expected to go up further. This makes it even more necessary for Thailand to climb further up the value chain in order to stay competitive against China and Vietnam, where wages are comparatively lower.

The New York fund manager said his next stop after a few days in Bangkok would be Vietnam, where he will explore the economy from a macro perspective to see if it offers any good value for investment at this stage. With a population slightly larger than Thailand's, Vietnam might be able to duplicate the Thai economic and export model at a potentially lower cost.

He asked me what Thailand would do if that was the case. First, I suggested that it would take another 10-15 years before Vietnam could develop its physical infrastructure (highways, airports and sea ports) sufficiently to support and facilitate the export-led economic growth model used by Thailand over the past three or four decades.

Second, Thai businesses and industries are trying to carve out more niche positions in the global market to reduce dependence on traditional markets, where cut-throat competition is now rampant.

The fund manager asked me who would likely lead the post-coup government after the general election in December. I said Abhisit Vejjajiva, leader of the Democrat Party, was a hopeful, while General Sonthi Boonyaratglin, chairman of the Council for National Security (CNS), was another possible candidate.

He was slightly surprised about Sonthi being a candidate, but I assured him that the coup leader would have to be elected if he was going to return to power.

A few days later, Dr Voraphol Sokatiyalak, vice chairman of the National Economic and Social Advisory Council, told me that the Bank of Thailand should cut the policy interest rate by at least another 50 basis points to help slow the baht's appreciation while continuing to intervene in the foreign-exchange market to keep the currency within a target range.

In his opinion, reversing the upward trend is difficult and politically risky as the central bank might have to put up a lengthy and costly fight, with potential losses of Bt400 billion-Bt500 billion or more, before it could win and see the baht depreciate to 34-35 to the dollar. Would the public support the central bank if the losses ran to half a trillion baht?

Instead, he suggested that the government come up with a package of tax and other incentives to encourage export-oriented industries to quickly restructure by boosting productivity and innovation to stay competitive the global market. A strong currency, and lower interest rates, are favourable for big capital investments in new machinery, logistics facilities etc, both locally and abroad.

Nophakhun Limsamarnphun

[solo siam]

Complete load of nonsense

"This New York-based fund manager, who preferred not to be named, recently learned that food is surprisingly cheap in Bangkok by Big Apple standards. For example, a decent dinner for five or six people at a middle-class Bangkok restaurant costs about Bt500, or just Bt100 (US$3.03) per head. For this price you would probably get just a few bites of a Big Mac meal in New York."

This is already measured as PPP or alternatively the Big Mac Index.

80-100 baht a head, in a mid-class restaurant - complete crap, you can just about squeeze a KFC meal in for that price but is that what is considered a middle class retaurant meal by Western standards?

You can eat a nice meal at a street vendor for 80-100 baht sure, fried rice, a main dish and a drink. But surely you can get a Hot-Dog from a Cart in NY for not much more.

May as well state that second hand sports cars cost 5 times as much here than in the UK, and suggest the UK needs to devalue its currency by 80%.

[onethailand]

Yeah, that is total BS. I don't know what he calls middle-class, but at 5-6 people you're talking 80-100 baht a head. The only thing I know that cheap other than eating on the street is having the all you can eat pork barbeques - hardly what I would term middle class.

While I can still see appreciation of the baht on the horizon, I think that 20% number is pure fantasy. Another 20% would take us close to the 25 baht/dollar days - not going to happen.

[samran]

Instead, he suggested that the government come up with a package of tax and other incentives to encourage export-oriented industries to quickly restructure by boosting productivity and innovation to stay competitive the global market. A strong currency, and lower interest rates, are favourable for big capital investments in new machinery, logistics facilities etc, both locally and abroad.

Nophakhun Limsamarnphun

geez, you guys really have trouble seeing the forest for the trees don't you. The most important thoughts were contained in the last paragraph, and you guys quibble about the cost of a meal?

[PeaceBlondie]

As Dr. Naam points out, it appears that article or the survey is outdated by several months. We are now at a level of defending 33 baht, not 35.50.

Don't see how it could be outdated since the article appeared in yesterday's edition of pattaya mail, my eyes don't deceive me!

Hey man, I'm not saying you quoted an old article. I'm saying that it appears to some of us that the source they cited was out of date. But perhaps the Pattaya Mail is the most authoritative news source in Asia. Is that the one that always tells us about the attack of 39 three-eyed ladyboys on Beach Road, wearing bad mascara?

[ray23]

Thought yuo guys would have fun with that one. Sound to me like someone very knowledgable of Thailand NOT. The last burger I had in Udon Thani with Fires and two cokes cost me $6.70. Good yes but compatrable to a mid range resturant in California not Mc Donalds. Yes I can have lunch for sixty baht eating local foods, but not the foods being compared to in New York. It was such a lame position I can understand why the name wasn't given. What dioe oe a good farrang meal cost in five star hotel in Bnagkok. That is about the only place that I know of your going to get the same atmosphire. It amazes me what the world doesn't know about Thailand. A comaprison to the Big Apple to oranges doesn't equate.

Now on to the real meat:

In his opinion, reversing the upward trend is difficult and politically risky as the central bank might have to put up a lengthy and costly fight, with potential losses of Bt400 billion-Bt500 billion or more, before it could win and see the baht depreciate to 34-35 to the dollar. Would the public support the central bank if the losses ran to half a trillion baht?

Instead, he suggested that the government come up with a package of tax and other incentives to encourage export-oriented industries to quickly restructure by boosting productivity and innovation to stay competitive the global market. A strong currency, and lower interest rates, are favourable for big capital investments in new machinery, logistics facilities etc, both locally and abroad.

And what are the costs for not doing it, sure they can buy the equipment even at great savings today from Ameriica, but who is going to operate it. It's sure not going to be some poor Issan person with a sixth grade education. What happens when rice season hits It's beginning to sound like the Thai's dont realize where they live these days. He let it slip building in other countries.

What is is that going to do for anybody but the upper 5% in this country. The very thing that he is advocating as a solution for Thailand would devistate this country.

The Thais could do this but they will have to revamp thier education system not just the manufactoring capablity, Change the work ethic of an entire nation, When they do that they will not get workers for 170 Baht a day.

When they get all done they can't sell it for less it will cost more, so who are they going to sell it to China, heck China can just make it's own, for a lot less money and export it for a lot less cost. China is not going to give up it's trade advantage, for Thailand or any other country. Thailand can not compete with China.

How long will all these wonderful things take, it's been ten months still no downward flow of money from the government into the economy. They got the money, why isn't being spent, Cause they spend months duscussing it. then they give it to thier efficient work force to be disbursed, wonder how long that will really take.

If they want small segments of society to benefit, then do nothing a eveything will happen anyway, allready it is for some exporters. This a country where 5000 workers stage a protest and the government immideatly steps in. Where 7000 farmers are protesting for debt relief again and they will probably get it.

When you have a rock in your hand nothing is going to make it into rose. This is Thailand not China not America. One of the reasons I live here.

So what is the cost of not spending the money? One way 5% of the country pays the bill the other 95% that doesn't have it.

[Naam]

But perhaps the Pattaya Mail is the most authoritative news source in Asia.

no doubt about that!

[onethailand]

Instead, he suggested that the government come up with a package of tax and other incentives to encourage export-oriented industries to quickly restructure by boosting productivity and innovation to stay competitive the global market. A strong currency, and lower interest rates, are favourable for big capital investments in new machinery, logistics facilities etc, both locally and abroad.

Nophakhun Limsamarnphun

geez, you guys really have trouble seeing the forest for the trees don't you. The most important thoughts were contained in the last paragraph, and you guys quibble about the cost of a meal?

This came from the Nation's Opinion section, in case any one was wondering.

Someone who is going to make a professional observation normally does a little bit of homework, and this writer didn't. The bit about the meal was clearly not right - and as most people do when they read news, if it's irrelevant they go on to the next article.

Nevertheless, I'll agree with the points in the last paragraph. But I think it's reasonable to say that most people will look towards the short term and would prefer to realize the value of their current investments rather than having to make new ones - and that is why the sentiment is that they would prefer the baht hang around 35. It's a stable currency they want, not a strong, weak, or volatile one.

[goatfarmer]

Think the government would comply?

Tell me your thoughts

I think we should dispel the myth once and for all that governments can be terribly effective at controlling currencies.

Sure, it can be done, but not without side effects. Hold the baht steady, and you are forced to have artificially high/low interest rates to keep the currency at a certain level which can lead to unnaturally depressed/over heated economy.

It leads to all sorts of messy rules and regulations which make it hard for people to get on with their own business. After the 1997 crash to Thai government (up until very recently) was falling over itself to STOP people sending money offshore - for fear it would weaken the baht. Now, as it is getting to strong, they are doing their darndest to encourage people not to hold baht.

It is a waste of time and resources.

I like to think of a floating currency as a bit of a shock absorber for an economy. You let the currency float, let it tell you a thing or two about how good/bad your economy is doing, and then use interest rates, microeconomic reform and fiscal policy to manage your economy so it grows.

But, the people calling for the baht to be XX.XX against the dollar are no more than self interested parties, hoping that the government can do something to protect their comfy position, rather than being creative and building businesses which are a bit more resliant to the baht moving up or down!

This is right. Any attempt to interfere with the market is setting the currency up for a speculative attack.

[captainstabbin]

And we know what happened when they tried that one last time

[xbusman]

Generally speaking, for exports, 35.5 is pretty much the break even point. Exporters can survive at that level and remain competitive in the world market. Below that, the only survivors will be the major internationals ...

Under 35.5 and things get progressively uglier on a Richter scale. I think critical mass will be reached around 31 or maybe as low as 30, at that point you will start to see even the big internationals packing up and heading out ...

These statements, most certainly indicates a real expert ... However, as it stands, just about anyone could've written the same figures (Personally, I'm capable of writing: 'Break even = 35.8 .... Critical mass = 28.4).

Admittedly, I don't have any argument for my figures --- do you have any for yours?

Sorry Cyberstar, I wish I had reams of data for you. Unfortunately I have only my spreadsheets and cost analysis. I purchase and sell in the US about $20 million a year mainly from China, Taiwan, Thailand and a little bit from Korea, Indonesia and India. Products are mostly retail including motorcycle parts, book publishing, CDs, CNC products, plastic injection tooling and products, and garments.

When I crunch the numbers among all the various manufacturers, on my little scale (which is very limited compared to the big players) 35.8 is where things tend to balance out for Thailand. There are many other considerations which dont show in those in numbers. Such as... In China, its much easier to get going, much easier to get a wider variety of raw materials, much easier to package and ship, and no 7% VAT that the folks in Thailand so love to keep for years and years before refunding some of it. BUT, the chinese will eventually find a way to burn me, I will take a hit somewhere or sometime, its just a matter of when and how much. The Thais, once I get them going (which is all but impossible) are simply lovely. They generally get it done on time and I can sleep a whole lot better.

I could be off 50 satang based on some overhead considerations, or other costs of doing business I dont have to compensate for being so small. But I do know where the price has to be in order to compete on the world market, my customers are very clear on that point, and in the end it all comes to down to the numbers. Why work in Thailand for a 1% gross when you can do the exact same job in China or India with a 12% gross. Actually, at 33 baht to the dollars, its much much worse than these numbers.

So your right, I dont have anything scientific or expansive. I could indeed be off. If you ever want to drop by and chew over the numbers the coffee is always on.

[xbusman]

Yes, why is 35.5 the break even point, that would mean exporters have historically only ran a maximum profit of 12-15% on their exported produce or so in the recent years.

Also part of the cost of exporting is the cost of transport, which is lowered as the baht strengthened against the dollar, perhaps not as much as the difference in currency, but factor in that most business items are also imported (computers, electronics, machinery) and will also be cheaper.

I'm not sure how the auto industry works here, but I assumed that they brought in parts from other countries and assembled them here for export, so a strong baht helps substantially if that is the case.

Ben, I always love your posts.

Generally speaking, depending on the product, exporters typically only make between 3% and 6% over time. Commodities are the worst, with margins of .001% to 3%, seldom higher. For example, scrap steel right now is selling for about $350 a ton CIF Bangkok. The selling broker and the importer will add $1 to $3 a ton, you can see by the math that those are pretty tight margins. If you get into high end things, like say motorcycle parts, you can make up to 20% but after working out inventory costs, the extra paperwork, warranties and returns, etc etc you find your net well under 10% for a product that is value wise much much smaller than commodities.

So we have to eliminate import/export or trading companies from the equation. They are after all only a sales and shipping arm of local manufacturers. Most decent sized manufacturers have their own sales operations and are covered in overhead. So... what is the margin for a typical local manufacturer. We know what it is in the west because accounting standards are painfully clear. It varies by industry and it takes a financial wizard (which I am not) to clearly describe to you the ratios that most businesses are measured by. Generally speaking, I have always been of the opinion that ROI (return on Investment) and ROA (return on Assets) have to be at least 10 to 12% or the business is just not worth doing. If you can get 7% for your money in Real estate or stock index funds over time, you would be a fool to take on the additional risk and work for less than 10%. There are plenty of exception, dont hold me to these as givens. For example, Banks. They often make just a 1% return on Investment as the difference between what they pay you on your account and what they earn by buying larger instruments on the open market. However, they have little to no risk, little to no overhead, etc etc.

Soooo, we can safely assume that most manufacturers make between 10% and 24% gross on their products, with different volumes and overheads, we would expect them to return a net of over 7%. So in essence, you are pretty close, export margins for the last few years have been running at 10-15% and (by my calculations) pretty much evaporate by 35.5 to 35.8 baht. The good news is that at level you are covering overhead and paying the wages of all the big puyai directors so business can continue at that level until things either improve or you find additional ways to cut costs.

Now to the next point. Yes, freight is part of the cost of exports. When I have a container ready to go I call my shipper and get a quote in baht. For example, last year a container of books shipped for about 140,000 baht or about US $3600. This year, as fuel increases and shipping is even tighter, my shipping company has upped the price on the same shipment to about 160,000 baht or about $4800. Combining inflation with currency, its just another $1200 expense to do business in Thailand. If your total shipped value is only about $1500 for something like rice, think about what a $1200 increase in freight does to your competitiveness. Get the picture?

And lastly your point about the auto industry. You are entirely correct, the big international companies import lots of bits, knowledge and equipment and do their best to reduce Thailand to a labor pool. At that rate, they can hold out on currency appreciation the longest. If it was a sealed system, there are between 100 and 400 manhours in the assembly of a car. If you are paying 500 baht a day for that labor and the currency appreciates 25% that only increases direct costs about 5000 baht a car. Peanuts to the price of a $20,000 car. Unfortunately those businesses do not work in a vacuum. First, the freight versus manufacture locally equations insists that a very large percentage of products be manufactured locally to support a car assembler. Example, no one ships seats. Freight space is much too valuable to be shipping around masses of foam rubber. So things like seats, headliners, dashboards, bumpers, lights are generally set up in local manufacturers. In turn, they become the actual exporter and subject to the high baht problems outlined above. Think of it as having your foreign customer setting up a receiving warehouse in Bangkok (the assembly line) before exporting it to the world market. That begins to make a huge difference. In addition, your overhead costs climb by the currency exchange rate. Those 10 million baht bribes now cost 25% more in yen or dollars. Your electricity, water, taxes, everything, every single cost raises with the currency appreciation because you sell your products in yen, dollars or euros. So we turn off lights, lay off staff, beat on vendors until the stone is empty of blood and then we do what all good businesses do, we close the doors.

The more we can isolate ourselves from Thai costs, the better we can survive the storm, but you would be amazed at how much overhead is always paid in local currency. We fight and kill to reduce costs over a year by .5%, we throw out long term vendors if someone else can provide the same good or service for 1% lower (somewhat exaggerated but probably not much), and what effect exactly do you think a 25% increase in labor and overhead costs caused by currency does to an established company?

Hope this clears up your confusion on how the baht effects the competitive level of Thai exports which account for 60% of GDP. The strong baht is great for importers, they are making some serious money (if the darn consumers would start buying again) and is also great for governments in paying back foreign loans. Other than that, everyone suffers.

An important last point. Its important to remember that the baht strengthening against the US dollar is the wrong way to describe the problem. The real problem is that the remimbe is tied to the dollar. If all currencies floated, and this was the case of the dollar getting weaker to the rest of world, Thai manufacturers could find ways of remaining competitive over time, even in this case where the baht is getting stronger against all currencies. As the dollar weakened, everyone in the game would just raise prices pretty uniformly and things would eventually work out, much to the detriment of the American consumer but stable none the less. The problem is, the Chinese and Japanese have stayed even with the dollar through manipulation of their currencies. That means then that we in Thailand, South Korea and Indonesia (australia and New Zealand too for that matter) begin to pay a 25% currency premium cost against our competitors. Does not take a rocket scientist to see what the results will be. When we say that we need 36 baht to the dollar to survive, that means that is the point below which where the Chinese simply take our business away from us. They are very very good at that. If we all floated together we would have a chance to fight back, as it is......