Are Farrangs Going To Be Hit From Both Sides Financially?

[ray23]

Are Farrangs going to be hit from both sides Financially

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We are seeing the value of our currencies effected no more so then the dollar. So our buying power is reduced in the case of the dollar already very heavily. It would appear that GBP has felt the hit and how much longer before the Euro. At the same time costs are going up for everyday items in Thailand, farmers are already being hit with costs as much 15% to 20% in essential supplies. That has to be passed on to the retailer and eventually the consumer

Thailand has already become a much more expensive place to be for dollar holders. I don't believe we will be alone in that and if this happens 25 to 1 is very possible. I know long term residents that will not qailify to keep thier visas at that rate. I consider a five year resident to be long term. Some Social Security recepients would be hard pressed to come up with the 40 K a month. For single guys in that income bracket forget it.

I will survive 25 t0 1, but it is sure as heck going to have real hit on what I can do and not do.

An article today in the Bangkok Post says the PPP is considering abolishing to he 30% rule, along with this little beauty. Is this good for Thailand I don't know, don't think so. But, Will it be good for the Thai stock market you bet, note who wrote it. As an American can't really say much I just watched my country do exactly the same thing in short term thinking.

Yep lets lower the interest rates so everyone can borrow more at a cheaper rate, obtaining monies with little thought to pay back. Yep really hard for an American to say much about this.

Who are going to get those loans the average citizen, going be much harder to qaulify for or will it be speculators borrowing to invest. I think we know the answer to that one. Now there is an intersting business group bullet proof, you lose don't worry all the tax payers will get the bill. No need to follow sound business fundementals.

So here we are a expats right between two countries. Tough times ahead I'm afraid.

ECONOMY / EXCHANGE RATES

Supavud: Let the baht rise and rates fall

Parista Yuthamanop

The government should allow the baht to appreciate freely to enable local interest rates to decrease and spur the domestic economy, said Supavud Saicheua, a managing director for Phatra Securities.

The dollar is likely to keep depreciating because the US Federal Reserve could reduce its interest rate from 3.5% to as low as 1% to head off a steep fall in US asset prices. The estimate was based on a forecast by Merrill Lynch, with which Phatra is allied.

Asian economies could see inflation risk worsen in light of the declining dollar, said Supavud.

"The depreciating dollar will push oil prices up. And the inflationary pressure will become more difficult to handle," Dr Supavud said at an economic conference yesterday at the Stock Exchange of Thailand.

By keeping the baht weak to support exports, the trade-off for the Thai economy was higher energy and oil prices in local currency terms, he said.

Additionally, the Bank of Thailand is expected to face greater pressure to cut its benchmark one-day repurchase interest rate from 3.25% to narrow its gap with the US interest rate.

The baht's appreciation would benefit imports for private investment, which would help offset a decline in exports. Private investment grew by only 3% in 2007, compared with a potential for 10% year-on-year, he said.

"We expect the Bank of Thailand to cut interest rates, but the question is how inflation will be handled," Dr Supavud said.

He said the government should allow the baht to outperform the Chinese yuan which is widely expected to strengthen by 7%, but it should have an assistance programme for labour in sensitive sectors such as textiles and furniture.

"Asian currencies should be allowed to strengthen across the board. It should be acceptable, if the baht strengthened by 10-15%," he said.

The strengthening baht would also support Asian economies' import demand for infrastructure building, he said.

"Almost all Asian economies need additional infrastructure investment. The currently high liquidity should be considered an opportunity to develop their own economic potential. They should let their currencies appreciate naturally in light of inflationary pressure," he said.

Dr Supavud said Asian economies altogether were subject to high inflation risk as they consumed relatively high amounts of imported energy.

Energy demand worldwide has been driven by the region because of rising population wealth and rapid growth in heavy industry, while demand from the US, Europe and Japan is declining as they use more nuclear power and their populations continue to age.

Many analysts were expecting the Fed to reduce its interest rate by another 50 basis points at its two-day meeting (the announcement was scheduled for 2:15 am today, Thailand time). An aggressive rate stance could help jolt the stock market but could build inflationary pressure in the US economy going forward.

"The Fed pumps liquidity into the financial market in the short term, but it risks credibility with higher inflation in the longer term. [Asian economies] should not tie their currencies with the dollar," Dr Supavud said.

He added that the Bank of Thailand should lift the 30% reserve requirement on capital inflows so that the baht would be driven by market mechanisms.

"The baht is expected to strengthen. But the one-way bet for baht appreciation will dissipate, after it rises to a certain extent," he said.

[Jingthing]

No problem for retirees if they can come up with 800K baht in a Thai bank account. Lower standard of living for the money, yep.

[moldy]

No problem for retirees if they can come up with 800K baht in a Thai bank account. Lower standard of living for the money, yep.

Yes double whammy for the foreseeable. Bt rates may stabilise at some point I guess, but ones things for sure it won't get any cheaper to live here.

[fletchsmile]

Yes I think expats will be hit by currency movements if they are from Europe, UK and US, and that is where their main wealth/currency is. The future trend for me is for all these currencies to weaken vs THB. Effectively they've had 10 years or so of cheap money. Prior to the Asian crises are levels they will go back to.

Yes Thailand's economy will continue to grow and develop. That will push prices up. As Thai's become wealthier and trend towards 2nd and 1st world status, prices will follow.

The timeframe for both happening is debateable, but my view is they are realities. It will get more expensive here in THB terms, and THB will become more expensive (stronger) vs other currencies.

There are some positives though:

- the Thai government and Bank of Thailand learnt a lot from '97, and are now better placed in its policies to manage inflation, as well as currencies

- The stockmarket, investment infrastructure and economy is generally widening, which will mean it will become easier and safer to invest in financial products here in the same way you do back home.

eg there are now Thai funds to invest in overseas/world stockmarkets, derivative markets to hedge risk, commodity funds. Foreign currency deposits will become more available here. All are good news.

eg for our daughter and my Thai wife, I am now able to take out investment and savings products similar to back in the west, but from here. This not only offers wider choice here, but can help mitigate exchange risks.

As with all changes though, they won't affect everyone equally, and unfortunately some will be hit more than others

Edited January 31, 2008 by fletchsmile

[Jimjim]

Quick answer. Only if their money is coming from overseas. Uh, yeah, at least for now.

[torrenova]

Th esimple reality is that people who have monitored the situation for less than 10 years have an artifiially high expectation of what the currency rates should be and they have, effectively, had a bonus over that period.

The problem is that people have made plans based on BT40/50/70 for the USD/EUR/GBP respectively and now those plans are in tatters. For the tourist sector, they have been happy to shred baht as it was cheap and now they complain because it is reverting to more normal historical levels.

[kiakaha]

Fed keeps slashing interest rates , NZL dollar keeps going up, NZL cash interest rates keep going up (now I'm getting more than 9% paid out each month)...i like this recession stuff

[PeaceBlondie]

Agreed, times look tough for those of us on American pensions. And folks like me who decided to come here at 42 baht/dollar have less margin to deal with. But I am not so sure that we need to revert (or think of reverting) to 25 to the dollar simply because that once was the historical rate, just as the Mexican peso was once worth 400 times its current value, which has been stable against the dollar since I left there in2001. I am expecting 31 or 30 baht per dollar to be the lowest number, but could survive comfortably at 27.

[PattayaParent]

No problem for retirees if they can come up with 800K baht in a Thai bank account. Lower standard of living for the money, yep.

Yes double whammy for the foreseeable. Bt rates may stabilise at some point I guess, but ones things for sure it won't get any cheaper to live here.

But it will still remain cheaper than living in your home country and you'll enjoy a better standard of living.

[fletchsmile]

Agreed, times look tough for those of us on American pensions. And folks like me who decided to come here at 42 baht/dollar have less margin to deal with. But I am not so sure that we need to revert (or think of reverting) to 25 to the dollar simply because that once was the historical rate, just as the Mexican peso was once worth 400 times its current value, which has been stable against the dollar since I left there in2001. I am expecting 31 or 30 baht per dollar to be the lowest number, but could survive comfortably at 27.

The comparison with the Mexican peso does highlight currencies can fluctutate significantly. But it is not really an apples to apples comparison. The old peso was replaced by the new peso in 1993, where one new peso was 1,000 old pesos. Hence I'm not sure what period of history is being used but the 400 multiple needs dividing by 1,000 to give a like for like comparison. i.e 0.4 x its current value. I sspect it refers to early 90's.

For info late 90's onwards MXN has been around 10. Early-Mid 90's it ranged around 4-7 if adjusting old pre 1993 peso to new peso after 1993. Mexico had its own crisis in 1994.

Th esimple reality is that people who have monitored the situation for less than 10 years have an artifiially high expectation of what the currency rates should be and they have, effectively, had a bonus over that period.

The problem is that people have made plans based on BT40/50/70 for the USD/EUR/GBP respectively and now those plans are in tatters. For the tourist sector, they have been happy to shred baht as it was cheap and now they complain because it is reverting to more normal historical levels.

Torrenova is spot on in my view.

GBP/THB averaged 40 between 1981-1996

USD/THB averaged 25 between 1981-1996

Then the Asian crisis struck, and THB and other Asian currencies were significantly devalued. That's been the case for the last 10 years numbers. But USD has been trending down since 2001, and GBP since 2004.

Bank of Thailand publishes exchange rates on its website. Uploaded is a file showing these back to 1981.

Thailand is over the Asian crisis, and reverting back to conditions pre 1997, and growing again, with its debts repaid and lessons learnt, as is the rest of SEA. So unless you are expecting another Asian crisis, banking on the USD 40 rates and GBP 70 rates is a dangerous move. The trend is down. If anything it's the western economies that are struggling now, and will lose ground in future, as emerging markets develop.

The 1981-1996 rates are "more normal" in my view. They will be challenged even further tho' as Thailand pushes passed its original 1997 position. We're probably talking years rather than months, but that's the direction.

Edited February 1, 2008 by fletchsmile

[fletchsmile]

BoT Published exchange rates 1981-2007 for anyone interested

http://www.bot.or.th/bothomepage/databank/...nload/Tab89.xls

Edited February 1, 2008 by fletchsmile

[VegasVic]

Fed keeps slashing interest rates , NZL dollar keeps going up, NZL cash interest rates keep going up (now I'm getting more than 9% paid out each month)...i like this recession stuff

Yes indeed and good for you, but many of New Zealand (and for that matter Austrailian, and EU) exporters have a whole different take on the situation. While I am certain that they are happy that your $3K/month retirement is secure for the time being, many of those exporters are facing impossible margin pressures and perhaps eventual bankruptcy! All markets go in cycles my friend(especially currencies) so I hope you have invested in something that will get you more than 9% per annum, because 3 or 4 years from now the shoe might be on the other foot and you will be the one living overseas with a rapidly depreciating curency I have brought up this same issue up with Americans on thai visa that have retired in Thailand and then after the weakness of the U.S. dollar they resort to bad mouthing their President or home country, when their standard of living suffers. In fact it is poor financial planning on their part that has put them in ther current perdicament. Since 2002 the dollar is down a little more than 20% vs. the baht, while a reasonable return in the U.S. equity markets over the same period was in the range of 15%- 20% per year. Anyone who retires in a foriegn country on a moderate fixed income and has no other investment vehicles working for them is looking for trouble, or a fool, or both. I don't mean to rub salt into the wounds of the American expats hurting out there, in fact if you can hold on a bit (12-18 months) longer I think that the dollar will have made a complete about face both against the baht and the Euro. The fact remains that when you chose to retire to a foriegn country you have to factor in many things, like stability of the government, safety, health, visa law and the unforeseen like exchange rates and hyperinflation. I hope that I don't come off as callous as the NZ poster that I have responded to, my post here is meant to give some perspective on touchy situation that many American expats are experiencing currently and many Brit expats will be experiencing in the very near term future.

[PeaceBlondie]

My example of Mexico does indeed go all the way back to about 1985, as do some of the comments about the baht. My point is that in the long term that any retiree might plan, historical averages may not predict future events. Had I stayed in Mexico, my dollars would be worth 7% more now than in 2001, rather than 20% less. It could go to 123 baht to the dollar, or 12.

[fletchsmile]

My example of Mexico does indeed go all the way back to about 1985, as do some of the comments about the baht. My point is that in the long term that any retiree might plan, historical averages may not predict future events. Had I stayed in Mexico, my dollars would be worth 7% more now than in 2001, rather than 20% less. It could go to 123 baht to the dollar, or 12.

Totally agree that historic averages do not predict future rates. What people like Torrenova and msyelf are saying, though is that they are one reference point when trying to arrive at what is a reasonable "normal (don't really like this word) rate". They're one factor of many.

The last 10 years have seen some specific conditions brought on by the Asian crisis. These specific crisis conditions have now passed. Conditions are now in many ways similar to where they were before the crisis, so it makes sense to compare rates before the crisis. Thailand is back on track as a growing and upcoming nation (albeit with a few uncertain political events, which also now passing).

Yes THB could in theory go to 123 or 12 vs USD. I'd say the probabilities tho' would be extremely low (less than 0.1%) of seeing 123 in the next 10 years. On the other hand I'd say a high probability (>75%) of seeing 25 again at some point in next 10 years. As for 12, obviously less likely, but I wouldn't rule it out in the next 10 years, and certainly much more chance than 123.

[thaihome]

Torrenova is spot on in my view.

GBP/THB averaged 40 between 1981-1996

USD/THB averaged 25 between 1981-1996

Then the Asian crisis struck, and THB and other Asian currencies were significantly devalued. That's been the case for the last 10 years numbers. But USD has been trending down since 2001, and GBP since 2004.

Bank of Thailand publishes exchange rates on its website. Uploaded is a file showing these back to 1981.

Thailand is over the Asian crisis, and reverting back to conditions pre 1997, and growing again, with its debts repaid and lessons learnt, as is the rest of SEA. So unless you are expecting another Asian crisis, banking on the USD 40 rates and GBP 70 rates is a dangerous move. The trend is down. If anything it's the western economies that are struggling now, and will lose ground in future, as emerging markets develop.

The 1981-1996 rates are "more normal" in my view. They will be challenged even further tho' as Thailand pushes passed its original 1997 position. We're probably talking years rather than months, but that's the direction.

The problem with your argument that the exchange rates pre-97 were “normal” is that during that time they were pegged to USD. As soon as the peg was removed, that is when the THB shot up to 50 and stayed over 40 for most of the next 10 years. The only economic change that caused the Asian crisis was the currency devaluation itself. Also the debts that have taken so long to repay were not new debts, they were always the same amount in USD, the problem was the amount doubled in the local currency in virtually one day. That is what caused the havoc. The currency were just floating to there “real” value at the time.

As the various economies recovered from that devaluation, the rate against the dollar has gradually strengthened due any number of factors domestically and in the US. As those factors continue to change, and they will, the currencies will continue fluctuate in a cycle of strengthening and weakening.

TH

[fletchsmile]

The problem with your argument that the exchange rates pre-97 were "normal" is that during that time they were pegged to USD. As soon as the peg was removed, that is when the THB shot up to 50 and stayed over 40 for most of the next 10 years. The only economic change that caused the Asian crisis was the currency devaluation itself. Also the debts that have taken so long to repay were not new debts, they were always the same amount in USD, the problem was the amount doubled in the local currency in virtually one day. That is what caused the havoc. The currency were just floating to there "real" value at the time.

As the various economies recovered from that devaluation, the rate against the dollar has gradually strengthened due any number of factors domestically and in the US. As those factors continue to change, and they will, the currencies will continue fluctuate in a cycle of strengthening and weakening.

TH

Fair point about the peg. However, since you've raised it, I think it's also important to put the peg into context.

I only used the last 25 years as an indication to show historic weakness. I could have gone back further, but it doesn't really change the conclusion of historic weakeness. If you look back to around 1900 when King Chulalongkorn first introduced the currency the picture is similar. The baht has been pegged to other currencies for most of its existence, so quoting free market rates for 20th century isn't really in option.

For a large part of the first half of the 20th century, it was pegged to GBP at around 12 to the pound. Yes, that is GBP, and a frightening thought no doubt for some.

It was pegged to the USD at rates around 20-25 between 1956 - 1997. It became the 25 you mention in 1985 under US strength of its economy, which certainly doesn't apply now. During WWII it was also fixed to JPY for a while, but I'd consider that extraordinary, so will ignore.

So for a period of 40 years, the peg was sustanaible in the 20-25 range. Admittedly it is an artificial rate. However, that's a very long period of time to sustain a peg if it was way out. So I'd taken it as a reasonable ball park.

Consider the opposite point of view, that the "real market rate" should be 40 baht to USD for those 40 years. I don't believe Thailand was strong enough to maintain it artificially at double strength for 40 years. That would have required continual selling of USD and buying THB. Thailand was in no position to sustain that. A little perhaps certainly not bringing 40 down to 20 for 40 years. Even HKD with its US peg would not sustain distortions of such magnitude for 40 years. Similarly CNY is now at an artificial rate to an extent. But by no means on this scale, despite China's large strength.

Also bear in mind it also took a crisis to break the peg after 40 years. The crisis has now passed.

The important points for me is that the only justification people seem to have for THB weakening again, is based on:

1) Fact that rates can go down as well as up - Any rate is theortically possible

2) What they have experienced in the last 10 years - which I would say has been unusual and brought on by the crisis.

There are much more reasons to take THB back in the direction it came from pre 1997, to where it has been since, and however, you want to look at it. THB has been historically weak over the last 10 years, since it first came into existence over 100 years ago.

Historic stats aren't everything by all means. There are much more factors. But I haven't yet seen anyone give sound economic reasons why the last 10 years would be "normal", and the previous 100 or so "abnormal". That's the key point.

All this is purely looking back. But that's because the historic 10 year argument is the main one people have used. If someone wants to post an argument looking forward of why USD would strengthen, then we can look at that one in turn. No-one is doing tho'

[fletchsmile]

The problem with your argument that the exchange rates pre-97 were "normal" is that during that time they were pegged to USD. As soon as the peg was removed, that is when the THB shot up to 50 and stayed over 40 for most of the next 10 years. The only economic change that caused the Asian crisis was the currency devaluation itself. Also the debts that have taken so long to repay were not new debts, they were always the same amount in USD, the problem was the amount doubled in the local currency in virtually one day. That is what caused the havoc. The currency were just floating to there "real" value at the time.

As the various economies recovered from that devaluation, the rate against the dollar has gradually strengthened due any number of factors domestically and in the US. As those factors continue to change, and they will, the currencies will continue fluctuate in a cycle of strengthening and weakening.

TH

BTW I'd disagree with the currency being the cause of the crisis. I would say that it was an effect rather than a cause.

Thailand had severely over-extended itself financially, before the collapse of its currency. It was this over-extension that undermined the countries financial position and hence undermined the value of the THB.

Thailand's economy was bubbling. There were large inflows of capital into the country. These were often short term, expensive and in foreign currencies. Furthermore they were often highly leberaged. This also created large currency exposures

Asset prices went up to unsustainable levels. People realised this and there was a credit crunch as capital flowed the other way again. Borrowers began to default. Lenders wanted money back on their loans. As investors attempted to get their money back, the market became flooded with Asian currencies which no-one wanted....etc

The build up to the crisis saw extraordinary strong demand for Thai assets. When the bubble burst no-one wanted them. Both created unprecented capital flows in the currencies. Cause of the crash is another topic tho'

[thaihome]

The problem with your argument that the exchange rates pre-97 were "normal" is that during that time they were pegged to USD. As soon as the peg was removed, that is when the THB shot up to 50 and stayed over 40 for most of the next 10 years. The only economic change that caused the Asian crisis was the currency devaluation itself. Also the debts that have taken so long to repay were not new debts, they were always the same amount in USD, the problem was the amount doubled in the local currency in virtually one day. That is what caused the havoc. The currency were just floating to there "real" value at the time.

As the various economies recovered from that devaluation, the rate against the dollar has gradually strengthened due any number of factors domestically and in the US. As those factors continue to change, and they will, the currencies will continue fluctuate in a cycle of strengthening and weakening.

TH

BTW I'd disagree with the currency being the cause of the crisis. I would say that it was an effect rather than a cause.

Thailand had severely over-extended itself financially, before the collapse of its currency. It was this over-extension that undermined the countries financial position and hence undermined the value of the THB.

Thailand's economy was bubbling. There were large inflows of capital into the country. These were often short term, expensive and in foreign currencies. Furthermore they were often highly leberaged. This also created large currency exposures

Asset prices went up to unsustainable levels. People realised this and there was a credit crunch as capital flowed the other way again. Borrowers began to default. Lenders wanted money back on their loans. As investors attempted to get their money back, the market became flooded with Asian currencies which no-one wanted....etc

The build up to the crisis saw extraordinary strong demand for Thai assets. When the bubble burst no-one wanted them. Both created unprecented capital flows in the currencies. Cause of the crash is another topic tho'

You are probably right that the currency float and subsequent devaluation did not cause the crash, I'm not sure anyone knows for sure what triggered it, but that factors you mentioned were pretty much just waiting for something to come along, and they did in May 97. Just like there are many factors in China just waiting for something to come along and bring it all down.

My main point was that currency values go in cycles, and since the baht has been pegged formost of its history, often extremely artificially, you cannot draw a conclusion that the value during the pegs were valid. The only valid valuation is what has happened in the 10 years since it was [more or less] floated, and that has ranged from 50+ to 30 something.

TH

[Gimbo]

I am from Norway, and the Krone (NOK) has gone up and up against the Baht over the last 6months. Also the exchange rate is so low, the current onshore rate is around 6 baht for 1 NOK. So a few perce3nts fluctuations up and down does not really have that big an impact.

Also the government in Norway recently published numbers that said that a Norwegian living in Thailand had 6 times the buying power in Thailand, compared to at home. So economically, well, I am better off here for now. Prices will really have to sky rocket to compare to my country.

Thank heavens we never became members of the EU

[Gimbo]

I am from Norway, and the Krone (NOK) has gone up and up against the Baht over the last 6months. Also the exchange rate is so low, the current onshore rate is around 6 baht for 1 NOK. So a few perce3nts fluctuations up and down does not really have that big an impact.

Also the government in Norway recently published numbers that said that a Norwegian living in Thailand had 6 times the buying power in Thailand, compared to at home. So economically, well, I am better off here for now. Prices will really have to sky rocket to compare to my country.

Thank heavens we never became members of the EU

Just to give you an indication of how expensive Norway is. The new MacBook Air computer. It is currently cheaper for a Norwegian to fly to New York, buy the computer there, spend a few days in a nice hotel, and fly back, pay the 24% VAT at customs in Norway, and you'll still have money to spare.

My electric bill in Norway was 1000NOK a month, here it is 100NOK.

This situation is not hurting me at all. But it will be sad to see all the Yanks and Briths leave...

[NovaBlue05]

This situation is not hurting me at all. But it will be sad to see all the Yanks and Briths leave...

Not sure how many will have to "leave". Those that do find themselves in that position weren't prepared to make that move in the first place.

I can't imagine why anyone would make a long term/permanent move unless their budget was using 25 bt/$$ as the benchmark

[fletchsmile]

You are probably right that the currency float and subsequent devaluation did not cause the crash, I'm not sure anyone knows for sure what triggered it, but that factors you mentioned were pretty much just waiting for something to come along, and they did in May 97. Just like there are many factors in China just waiting for something to come along and bring it all down.

My main point was that currency values go in cycles, and since the baht has been pegged formost of its history, often extremely artificially, you cannot draw a conclusion that the value during the pegs were valid. The only valid valuation is what has happened in the 10 years since it was [more or less] floated, and that has ranged from 50+ to 30 something.

TH

Yes I'd agree they go in cycles. As you point out its down to trying to use:

1) 10 years floated. This is just one cycle, and unusual events, so not an ideal measure

2) 40 years+ pegged at 20-25. Within this period there were various cycles. Unfortunately a pegged rate is not ideal either as a measure.

While not ideal, I wouldn't dismiss it out of hand, and it can still be used as a benchmark, using a few estimates and assumptions.

Firstly, for me the pegged rate gives some comfort as 40 years is a long long time to sustain something that is totally unrealistic.

Secondly, consider 3 possible scenarios:

1) If normally distributed, there'd be enough points where it was a little too strong or a little too weak, and they'd balance out, so it would be valid, as an average range.

2) Assuming THB remained artificially low overall. That means it should be less than 20-25, (i.e sub 20) which for this thread would be bad news, and still supports the argument for being THB being seriously undervalued in last 10 years.

3) Only if you assume THB was artificially strong for 40 years would it be good news for this thread. Then we've got to ask, why would THB be artificially strong? If you look at China for example, general consensus is the government is stopping the currency appreciating as it should, so it can grow and compete. i.e China is doing the opposite. If THB had been artificially strong, that wouldn't have been good for investments from overseas.

So in only 1 scenario out of 3 it would be valid to say THB was artificially strong. Even on that assumption, it would be difficult to find reasons why throughout a 40 year period. As you point out economies and currencies move in cycles, so at some points Thailand probably wanted a weaker and sometimes stronger currency than 20-25.

Thirdly if you estimate how inaccurate it was, I doubt it would be more than 25% for a 40 year period, even if we believe the 3rd scenario applies. That would suggest say 25-30 as a "real rate". How much is CNY undervalued at the moment? 20%-30% and then it gets pressured to adjust the peg. It's also worth noting that the Thai peg was asjusted from 20-ish to 25, i.e a movement of 25% in 1985 after about 30 years.

Pegs eventually get forced to move.

So while the pegged period is difficult to measure, for me the overall "feel" remains that a "normal rate" for most of 40 years pre 1997 would have been sub 30, even trying to give the benefit of the doubt. Who knows it could also have been about right, or sub-20. There are so few conditions and probabilities in the previous 40 years pre 1997 to disprove that sub-30 would be wrong.

Edited February 1, 2008 by fletchsmile

[fletchsmile]

This situation is not hurting me at all. But it will be sad to see all the Yanks and Briths leave...

I'm sure NOK will get its turn at being a weak currency. As will AUD, NZD etc.

Also you've got to ask yourself, how long can the factors remain that someone gets paid so much more, or has to pay so much more for the same services/ goods just because they are in a different country. Thailands potential to grow is much bigger than Norways. The gap will close, it's just a question of when.

Don't worry there's plenty of Brits and Yanks who'll be staying. Quite a few have shown above they consider above 25 a bonus, and have planned for the worst.

Edited February 1, 2008 by fletchsmile

[Jingthing]

I wasn't planning on 25 to a USD, but I wouldn't leave at least right away if that happened. 15 or 20 would shake me out, and so would an extreme change in the retirement extension rules.

[Gimbo]

This situation is not hurting me at all. But it will be sad to see all the Yanks and Briths leave...

I'm sure NOK will get its turn at being a weak currency. As will AUD, NZD etc.

Also you've got to ask yourself, how long can the factors remain that someone gets paid so much more, or has to pay so much more for the same services/ goods just because they are in a different country. Thailands potential to grow is much bigger than Norways. The gap will close, it's just a question of when.

Don't worry there's plenty of Brits and Yanks who'll be staying. Quite a few have shown above they consider above 25 a bonus, and have planned for the worst.

Well, I am not worried, yet... but sure glad I am not paid in dollars.

In the future...I think I would worry more if I was sitting with a house with a huge mortgage, car, 1.6 kids, cabin in the mountains and a boat on the fjord, working my behind off to pay for it all in Norway, than I do sitting in a village house in Isaan right now.

And should Thailand reach Norways levels in expensiveness, well then I may look for somewhere else.

The bit about yanks and Briths leaving was a joke BTW.

Edited February 1, 2008 by Gimbo

[fletchsmile]

I wasn't planning on 25 to a USD, but I wouldn't leave at least right away if that happened. 15 or 20 would shake me out, and so would an extreme change in the retirement extension rules.

Always wise to consider where your break points are

People like to quote "only bring into Thailand as much as you can afford to lose". But while there's some merit in that, I think most people living here need to build up a reasonable % of THB linked assets. THB assets onshore if you're not worried about legal risks, and offshore for those who are.

The exceptions would be multi-millionaires (and I don't mean THB ) who have a big enough pot so they've no need to worry.

[backflip]

"Are Farrangs going to be hit from both sides Financially"

You answered your own question. How convenient and thoughful of you.

[PeaceBlondie]

I wasn't planning on 25 to a USD, but I wouldn't leave at least right away if that happened. 15 or 20 would shake me out, and so would an extreme change in the retirement extension rules.

Jingthing, that's a good point, that our decisions to remain in a country are affected by a combination of several factors. 25:1 would really tempt me to leave, as would a doubling of the rules for pension income and bank deposits. Not having made any fertilizing sperm deposits in Thailand, I can leave and return to a place that is only an overnight bus trip away from my children.

[Prakanong]

Agreed, times look tough for those of us on American pensions. And folks like me who decided to come here at 42 baht/dollar have less margin to deal with. But I am not so sure that we need to revert (or think of reverting) to 25 to the dollar simply because that once was the historical rate, just as the Mexican peso was once worth 400 times its current value, which has been stable against the dollar since I left there in2001. I am expecting 31 or 30 baht per dollar to be the lowest number, but could survive comfortably at 27.

The comparison with the Mexican peso does highlight currencies can fluctutate significantly. But it is not really an apples to apples comparison. The old peso was replaced by the new peso in 1993, where one new peso was 1,000 old pesos. Hence I'm not sure what period of history is being used but the 400 multiple needs dividing by 1,000 to give a like for like comparison. i.e 0.4 x its current value. I sspect it refers to early 90's.

For info late 90's onwards MXN has been around 10. Early-Mid 90's it ranged around 4-7 if adjusting old pre 1993 peso to new peso after 1993. Mexico had its own crisis in 1994.

Th esimple reality is that people who have monitored the situation for less than 10 years have an artifiially high expectation of what the currency rates should be and they have, effectively, had a bonus over that period.

The problem is that people have made plans based on BT40/50/70 for the USD/EUR/GBP respectively and now those plans are in tatters. For the tourist sector, they have been happy to shred baht as it was cheap and now they complain because it is reverting to more normal historical levels.

Torrenova is spot on in my view.

GBP/THB averaged 40 between 1981-1996

USD/THB averaged 25 between 1981-1996

Then the Asian crisis struck, and THB and other Asian currencies were significantly devalued. That's been the case for the last 10 years numbers. But USD has been trending down since 2001, and GBP since 2004.

Bank of Thailand publishes exchange rates on its website. Uploaded is a file showing these back to 1981.

Thailand is over the Asian crisis, and reverting back to conditions pre 1997, and growing again, with its debts repaid and lessons learnt, as is the rest of SEA. So unless you are expecting another Asian crisis, banking on the USD 40 rates and GBP 70 rates is a dangerous move. The trend is down. If anything it's the western economies that are struggling now, and will lose ground in future, as emerging markets develop.

The 1981-1996 rates are "more normal" in my view. They will be challenged even further tho' as Thailand pushes passed its original 1997 position. We're probably talking years rather than months, but that's the direction.

I agree with you and Torrenova as regards people budgeting at post 97 levels.

As for Thailand ever getting back to pre-97 levels of growth I doubt it.

Yes it will grow but the world has changed since then and global and regional shifts have taken place - Thailand is on the periphary and only has one industry that appreas on world indices ie automotive which has consolidated in the hands of oversea's companies since 97.

Do not expect any Small Tiger economic growth from Thailand again - many other countries have bettered their competitive advantages and Thailand is pretty much a stagnant backwater without the human capital, innovation to really compete - even the low value assembly jobs it used to attract are going elsewhere - the Japanese will always invest though more due to fear of China but look at what they put into Dalian province there where they speak Japanese.

[xbusman]

It hardly matters really. I live in Thailand because it provides the best living cost per dollar of any place I have found. If the dollar continues to slide and inflation continues to roar along in Thailand, it will become cheaper and better to live someplace else, perhaps even the US. Already I find about half of what I purchase to be less expensive in the US. Those things ebb and flow like the tide and it pays to remain flexible enough to ride the waves.