What's All This Talk Of A Baht Collapse?

[haybilly]

Sorry to bring this up yet again-[yes, I know it's been covered to death]-but I would like to hear from all the learned TV financial wizards as to why people keep posting that this decline is either possible or even imminent--is this just wishful thinking from people who's income in Thailand is based in foreign currencies or is there any grounds for such 'optimism'? Does Thailand have any IMF or World Bank loans, does Tarissa really artificially hike the baht [by buying/selling $US or whatever] and so on--please can you give me some ideas?

Layman-speak would be nice.

[chiang mai]

Sorry to bring this up yet again-[yes, I know it's been covered to death]-but I would like to hear from all the learned TV financial wizards as to why people keep posting that this decline is either possible or even imminent--is this just wishful thinking from people who's income in Thailand is based in foreign currencies or is there any grounds for such 'optimism'? Does Thailand have any IMF or World Bank loans, does Tarissa really artificially hike the baht [by buying/selling $US or whatever] and so on--please can you give me some ideas?

Layman-speak would be nice.

There's a lot of wishful thinking on the part of expats right now who are expecting the Baht to collapse and I would guess that most are going to be sadly disappointed. No, Thailand does not have any IMF loans, the ones granted in 1997 were paid off during the last year of the Thaksin government - more importantly Thailand now has fairly substantial foreign currency reserves of circa USD 110 billion and rising, not falling.

Edited January 7, 2009 by chiang mai

[cclub75]

There's a lot of wishful thinking on the part of expats right now who are expecting the Baht to collapse and I would guess that most are going to be sadly disappointed. No, Thailand does not have any IMF loans, the ones granted in 1997 were paid off during the last year of the Thaksin government - more importantly Thailand now has fairly substantial foreign currency reserves of circa USD 110 and rising, not falling.

Wishful thinking is not really part of the equation, at least for the USD-THB. I think "common sense" is the key word.

-81 % of all thai exports are paid in USD (source Bank Of Thailand, 2007)

-68 % of exports receipts are converted in THB

-this is why there is only one foreign currency that matters : US Dollar.

-now, we know that exports start to fall (november). Like everywhere in Asia. Now ask yourself : is it a trend that will continue and worsen or just a statistical accident ? The first answer is the most likely : the result of the global demand shock.

-we know that exports were the last growth engine for GDP... and this engine was already slowing down (see the figures for Q3).

-what do we have left ? Consumption ? Down. Investment ? Down. Government spendings ? Bullshit (the so called "mega projects" lalaland).

-the government is penny less, tax collections are going down (to add more "stimulus package", 100 billions THB or 300 billions like Abhisit promised, won't really change the situation).

-so a negative GDP growth is 100 % sure in 2009, unemployment will rise.

-and the banks, like everywhere else, are not willing to lend more (it's funny to hear the same nonsense in Thailand, than in the US, or Europe : "boost lendings to save our economy", it's equally pathetic).

-at that point : you are a thai politician... or even the BOT governor, what do you do ? There is one simple leverage : the USD-THB exchange rate. A lower THB versus USD (I insist : USD, because other currencies are not relevant) will immediately boost the THB receipts of thai exporters, giving precious oxygen to thai businesses, and adding fuel into the engine (or lubricant)

-it's clearly the asian bias : Japan and China are on this path (read "China plays beggar thy neighbor")

-now of course there is a margin : to call for a lower THB versus USD doesn't mean necessarily a huge devaluation.

-But again, it's difficult to envision Thailand resisting this temptation.

-it's a universal rule : politicians are always going on the easiest (apparently) path... Never the hardest.

Edited January 7, 2009 by cclub75

[chiang mai]

Perhaps we should distinguish here between the Baht's collapse and its expected range of movements. The term collapse implies a return to the heady days of 70 baht per Pound (apologies here that I can't equate this argument in USD equivalents) and that in my view is certainly not going to happen. Will the Baht weaken from its current 51 Baht per Pound during the next six months, probably but there's no reason to believe that move will be much more than 10% to somewhere around 56 ish.

[Smithson]

-now of course there is a margin : to call for a lower THB versus USD doesn't mean necessarily a huge devaluation.

-But again, it's difficult to envision Thailand resisting this temptation.

How does Thailand manage to 'devalue' the Baht? The currency has been floated since 97.

[chiang mai]

-now of course there is a margin : to call for a lower THB versus USD doesn't mean necessarily a huge devaluation.

-But again, it's difficult to envision Thailand resisting this temptation.

How does Thailand manage to 'devalue' the Baht? The currency has been floated since 97.

It is alleged that the BOT is supporting the Baht by selling US Dollars from its reserves, only in small amounts it would seem however - if the BOT stopped doing that the effect would be to devalue the Baht.

[cclub75]

How does Thailand manage to 'devalue' the Baht? The currency has been floated since 97.

"floated" doesn't mean much. The BOT has been constantly following a "management currency" policy. It's obvious, documented (the capital controls from december 2006 to march 2008, the on shore / off shore dual rates, the policy of buying USD, because a that time the THB was increasing too fast versus the USD etc.)

It's the same for the chinese RMB. I hope you're not fooled by the "narrow band"...

I would like to add that to "manage" the USD-THB exchange rate is certainly easy for the BOT. Because Thailand has avoided the peak of hot money (2007)... And foreigners have already left the SET. It's a small market.

Edited January 7, 2009 by cclub75

[wolfmanjack]

40 baht to the US$ would probably bring back some of my customers.

[Chaimai]

There is one simple leverage : the USD-THB exchange rate. A lower THB versus USD (I insist : USD, because other currencies are not relevant) will immediately boost the THB receipts of thai exporters, giving precious oxygen to thai businesses, and adding fuel into the engine (or lubricant)

I agree entirely but what seem obvious to me is that this strategy has been required for 2 months or more - and no apparent inclination to play ball.

It will obviously make Thailand more attractive to European buyers as the GBP/EUR will track THB/USD it should also give some encouragement to tourism.

[Smithson]

How does Thailand manage to 'devalue' the Baht? The currency has been floated since 97.

"floated" doesn't mean much. The BOT has been constantly following a "management currency" policy. It's obvious, documented (the capital controls from december 2006 to march 2008, the on shore / off shore dual rates, the policy of buying USD, because a that time the THB was increasing too fast versus the USD etc.)

They have been attempting management, but it hasn't really worked. Those mentioned failed to stem the tide - the baht continued to rise. So I don't see how they can now 'manage' to lower it's value, because they haven't been able to in the past.

Not to mention that circumstances outside the country are much bigger factors than anything going on here.

[chiang mai]

There is one simple leverage : the USD-THB exchange rate. A lower THB versus USD (I insist : USD, because other currencies are not relevant) will immediately boost the THB receipts of thai exporters, giving precious oxygen to thai businesses, and adding fuel into the engine (or lubricant)

I agree entirely but what seem obvious to me is that this strategy has been required for 2 months or more - and no apparent inclination to play ball.

It will obviously make Thailand more attractive to European buyers as the GBP/EUR will track THB/USD it should also give some encouragement to tourism.

Errr, why has this strategy been needed for two months? and,

Can you explain what you mean when you say GBP/EUR will track THB/USD?

[chiang mai]

How does Thailand manage to 'devalue' the Baht? The currency has been floated since 97.

"floated" doesn't mean much. The BOT has been constantly following a "management currency" policy. It's obvious, documented (the capital controls from december 2006 to march 2008, the on shore / off shore dual rates, the policy of buying USD, because a that time the THB was increasing too fast versus the USD etc.)

They have been attempting management, but it hasn't really worked. Those mentioned failed to stem the tide - the baht continued to rise. So I don't see how they can now 'manage' to lower it's value, because they haven't been able to in the past.

Not to mention that circumstances outside the country are much bigger factors than anything going on here.

I don't think you fully understand - the BOT has been selling USD in order to keep the Baht strong, if they wish to weaken the Baht it is easy to do except that they haven't tried nor wanted to.

[Jimjim]

Don't you know? The sky is falling and the world is going to descend into anarchy. The Apocalypse is upon us! Repent, repent!

[Smithson]

I don't think you fully understand - the BOT has been selling USD in order to keep the Baht strong, if they wish to weaken the Baht it is easy to do except that they haven't tried nor wanted to.

Since when? Why do the want a high Baht?

[chiang mai]

I don't think you fully understand - the BOT has been selling USD in order to keep the Baht strong, if they wish to weaken the Baht it is easy to do except that they haven't tried nor wanted to.

Since when? Why do the want a high Baht?

Therein lies the mystery - strong currency, strong economy, face, who knows, the facts remain however. Possible pain later or not, unsure.

[chiang mai]

I don't think you fully understand - the BOT has been selling USD in order to keep the Baht strong, if they wish to weaken the Baht it is easy to do except that they haven't tried nor wanted to.

Since when? Why do the want a high Baht?

Therein lies the mystery - strong currency, strong economy, face, who knows, the facts remain however. Possible pain later or not, unsure.

[Smithson]

I don't think you fully understand - the BOT has been selling USD in order to keep the Baht strong, if they wish to weaken the Baht it is easy to do except that they haven't tried nor wanted to.

Since when? Why do the want a high Baht?

Therein lies the mystery - strong currency, strong economy, face, who knows, the facts remain however. Possible pain later or not, unsure.

Is it a mystery or a fact? Even if they wanted to, they make little difference. Do you know what happened in '97?

[soundman]

I want to add a long shot to the baht value debate, and it will probably be shot down by the guys that know how things work on macro scales :

Much of the perceived need to keep the baht srong has to do with energy/politics.

Since Thailand imports most of it's energy, a weak baht would cause massive inflation (as we saw during peak oil) which would also have a substancial effect on the export market, and would be every politicians worst nightmare.

A strong baht is the political ace of spades, allow the baht to weaken by 20% and you'de be out at the next elections.

[chiang mai]

I don't think you fully understand - the BOT has been selling USD in order to keep the Baht strong, if they wish to weaken the Baht it is easy to do except that they haven't tried nor wanted to.

Since when? Why do the want a high Baht?

Therein lies the mystery - strong currency, strong economy, face, who knows, the facts remain however. Possible pain later or not, unsure.

Is it a mystery or a fact? Even if they wanted to, they make little difference. Do you know what happened in '97?

Other interested parties will no doubt pick up this relentless and oft repeated point.

Haybilly: the short answer is that the GBP/THB position may improve slightly but as always with these things, NOBODY knows for sure.

[Naam]

Perhaps we should distinguish here between the Baht's collapse and its expected range of movements. The term collapse implies a return to the heady days of 70 baht per Pound (apologies here that I can't equate this argument in USD equivalents) and that in my view is certainly not going to happen. Will the Baht weaken from its current 51 Baht per Pound during the next six months, probably but there's no reason to believe that move will be much more than 10% to somewhere around 56 ish.

in my view it is a mistake to look at any other exchange rate than THB/USD as other rates vs. THB are 90% the result of cross trading.

[Smithson]

I want to add a long shot to the baht value debate, and it will probably be shot down by the guys that know how things work on macro scales :

Much of the perceived need to keep the baht srong has to do with energy/politics.

Since Thailand imports most of it's energy, a weak baht would cause massive inflation (as we saw during peak oil) which would also have a substancial effect on the export market, and would be every politicians worst nightmare.

A strong baht is the political ace of spades, allow the baht to weaken by 20% and you'de be out at the next elections.

A strong baht stops the tourists and exports. Factories are already closing, unemployment increasing and a lot missed out on bonuses.

I find it difficult to believe Thailand can really have much effect. Surely decisions taken by governments in large economies have a greater effect than anything the Thais can do?

I don't know either and am just asking. A weak Baht would be great for me, but I've been waiting since the $ dropped below 38.

[think_too_mut]

I want to add a long shot to the baht value debate, and it will probably be shot down by the guys that know how things work on macro scales :

Much of the perceived need to keep the baht srong has to do with energy/politics.

Since Thailand imports most of it's energy, a weak baht would cause massive inflation (as we saw during peak oil) which would also have a substancial effect on the export market, and would be every politicians worst nightmare.

A strong baht is the political ace of spades, allow the baht to weaken by 20% and you'de be out at the next elections.

A strong baht stops the tourists and exports. Factories are already closing, unemployment increasing and a lot missed out on bonuses.

I find it difficult to believe Thailand can really have much effect. Surely decisions taken by governments in large economies have a greater effect than anything the Thais can do?

I don't know either and am just asking. A weak Baht would be great for me, but I've been waiting since the $ dropped below 38.

Wish for it, for weak Baht, wish it and wish more. Wish it when you are taking a crap, shit it out, in pain. Uuummm.

That's about the "analysis" the experts can give.

[fred2007]

I want to add a long shot to the baht value debate, and it will probably be shot down by the guys that know how things work on macro scales :

Much of the perceived need to keep the baht srong has to do with energy/politics.

Since Thailand imports most of it's energy, a weak baht would cause massive inflation (as we saw during peak oil) which would also have a substancial effect on the export market, and would be every politicians worst nightmare.

A strong baht is the political ace of spades, allow the baht to weaken by 20% and you'de be out at the next elections.

well Soundman you hit the nail on the head

[Gary A]

For those predicting the collapse of the baht, all you have to look at is the state of the rest of the world's economies. Thailand is likely better placed than most and if you are waiting for the baht to collapse, I think you will have a long disappointing wait. Unlike the western world, Thailand did learn something from the 1997 debacle.

[Thai at Heart]

With interest rates in the US going to zero and the UK BOE under pressure to reduce more, economically it would suggest a zero end game.

The only reason to devalue the baht from the Bank of Thailands and govt eyes would be to stimulate domestic consumption and cheapen exports. Would it stimulate consumption? Doubtful to have a massive effect. The govt has already tabled plans for tax breaks on high value houses. Any saving in mortgages the people will pocket not spend because they are scared about losing their jobs. It wouldn't lead to a splurge of spending.

Would it stimulate exports? It would have to go an awfully long way to bring customers back to source products in Thailand from other cheap producing countries. China is next door and Thailand will never be able to compete on price alone against it. If the yuan devalues, the baht may follow but I don't see it. Don't forget a massive amount of exports here rely on imported raw materials so a devaluation pushes up imports. Steel and oil are way down, so I am not sure, but the input cost of a lot of products may actually be falling.

It might have a small boost to tourism, but would you change your decision on travelling to Thailand because it was 10% cheaper, 20% cheaper or 30% cheaper? Flights and the whole lot probably cost 1500 gbp per head at least, would you decide to travel because it is 1350? Some might, but the news in the UK is so bad right now, holidays are off the menu for many irrespective of cost.

Since the main trade is USD Baht and the GBP rate is probably calculated on a ratio of this, the rise of the baht to the GBP has more to do with the mess in the UK than strength in Thailand.

I can imagine a measured devaluation to 36 to the USD and a little bit to the pound 55, not a collapse as imagined. But then again the news in the US and the Europe is going to be shocking and the new govt will try its absolute damndest not to be involved in another currency collapse. Plus who knows how much foreign borrowing the major industrials have been doing and I am sure they would be in the govts ears to avoid another 97.

[monkeytunes]

For those predicting the collapse of the baht, all you have to look at is the state of the rest of the world's economies. Thailand is likely better placed than most and if you are waiting for the baht to collapse, I think you will have a long disappointing wait. Unlike the western world, Thailand did learn something from the 1997 debacle.

I wasnt hear in 97, could you explain what Thailand learnt and changes they made as a result of it? -just curious, thanks MT

[chiang mai]

Perhaps we should distinguish here between the Baht's collapse and its expected range of movements. The term collapse implies a return to the heady days of 70 baht per Pound (apologies here that I can't equate this argument in USD equivalents) and that in my view is certainly not going to happen. Will the Baht weaken from its current 51 Baht per Pound during the next six months, probably but there's no reason to believe that move will be much more than 10% to somewhere around 56 ish.

in my view it is a mistake to look at any other exchange rate than THB/USD as other rates vs. THB are 90% the result of cross trading.

Agreed, I simply couldn't make the point though by quoting USD figures accurately.

[chiang mai]

For those predicting the collapse of the baht, all you have to look at is the state of the rest of the world's economies. Thailand is likely better placed than most and if you are waiting for the baht to collapse, I think you will have a long disappointing wait. Unlike the western world, Thailand did learn something from the 1997 debacle.

I wasnt hear in 97, could you explain what Thailand learnt and changes they made as a result of it? -just curious, thanks MT

There will be a test later!

http://en.wikipedia.org/wiki/Asian_crisis

[haybilly]

Sorry to bring this up yet again-[yes, I know it's been covered to death]-but I would like to hear from all the learned TV financial wizards as to why people keep posting that this decline is either possible or even imminent--is this just wishful thinking from people who's income in Thailand is based in foreign currencies or is there any grounds for such 'optimism'? Does Thailand have any IMF or World Bank loans, does Tarissa really artificially hike the baht [by buying/selling $US or whatever] and so on--please can you give me some ideas?

Layman-speak would be nice.

There's a lot of wishful thinking on the part of expats right now who are expecting the Baht to collapse and I would guess that most are going to be sadly disappointed. No, Thailand does not have any IMF loans, the ones granted in 1997 were paid off during the last year of the Thaksin government - more importantly Thailand now has fairly substantial foreign currency reserves of circa USD 110 billion and rising, not falling.

Cheers Chiang Mai--I thought that it was just 'wishful thinking'--thanks for the low-down on the IMF loans-guess we'll just have to get used to 45-50/pound for the foreseeable.

[Naam]

How does Thailand manage to 'devalue' the Baht? The currency has been floated since 97.

"floated" doesn't mean much. The BOT has been constantly following a "management currency" policy. It's obvious, documented (the capital controls from december 2006 to march 2008, the on shore / off shore dual rates, the policy of buying USD, because a that time the THB was increasing too fast versus the USD etc.)

They have been attempting management, but it hasn't really worked. Those mentioned failed to stem the tide - the baht continued to rise. So I don't see how they can now 'manage' to lower it's value, because they haven't been able to in the past.

Not to mention that circumstances outside the country are much bigger factors than anything going on here.

I don't think you fully understand - the BOT has been selling USD in order to keep the Baht strong, if they wish to weaken the Baht it is easy to do except that they haven't tried nor wanted to.

adding "fully" does not seem to be appropriate