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How Does The Baht Stay So Strong?


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The 10 ton gorilla in the corner of the room, is the net effect on the balance of payments from a drop in exports. I am not sure of the exact percentage of value of imports that are turned around into exports from the factory gate, but I am reliably informed that it is a very high percentage of Thailands high value exports (automobiles and electronics).

Oil and most commodities as imports are remarkably cheaper than a year ago, and whilst business is obviously slowing down this will lead to domestic unemployment but not a massive current account deficit which would put downwards pressure on the baht. I believe the net effect on the current account isn't as large as we may perceive because a majority (significant) of the value of the exports are imported first. Add in the dropping cost of world commodities and there is no inflationary pressure either. No exports, mean grossly reduced imports also. Add in the fact that the domestic banks didn't dip their toes into the sub-prime rubbish and the big US banks or pension funds didn't get into the Thai stock market, capital flight is insignificant in comparison with for example South Korea.

This is the effect when Thailand is essentially a low value added constructor not primary manufacturer and the West considers their blue chip companies to be below a level of corporate governance to allow them to invest.

The baht will weaken, but it is unlikely to fall as far as other currencies in the region.

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Its not just about the baht, its also political and the political situation in Los remains as clear as the Chao Praya river. There has been no forward planning just a blind belief that the carousel would keep turning, even now with the music stopped and the fairground emptying there doesn't appear to be anyone listening.

Good analysis, and thanks for the Newsweek article also

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Rest assured that the Bhat cannot retain its high level over time, the crunch is coming and will probably be at about the time the rest of the world starts its up swing this will probably mean a double wammy for Thailand.

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Yup .............. you can expect the Baht to start heading South last 2 quaters of this year, begining of next year. Thailands exports are falling fast - a lot of the big Western brand name contracts are starting to wind down now are are not been replaced with new contracts (Nike, Levi, Volo, Merc .... theres loads of them) - from car parts to jeans to multi media to white goods to whatever you can think of, Thai manufacturing lines are slowing down now at a rate they would have thought impossible 2 years ago.

Making it worse, is that on top of the Western slow down in consumer spending, the Thai authorities have artificialy kept the value of the Baht high. In my opinion, the longer they do that, the harder the fall will be when it comes.

Hang on to your forex - now is not the time to be using forex to make big capital investments in Thailand.

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"That's the beauty of economy : everybody can find what he wants into the data"

Two economic students asked their prof for old exam papers

When they looked at them, being honest guys, they said, "Sir, you have given us this years papers."

"It's Ok", he said, "The questions are the same every year, it's the answers that are different".

Edited by desertrat
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From today's Business Post:

Baht value faces scrutiny

Cabinet ministers on Wednesday will consider whether current exchange rates are affecting Thailand's export competitiveness. However, Finance Minister Korn Chatikavanij played down any conflicts or interference with the Bank of Thailand's handling of exchange-rate policy. "We are not intending to reduce the governance of the central bank over exchange rates, but only to assess what impact rates are having on the export sector," he said yesterday.The baht, which slipped yesterday to 35.12/16 from 35.02/09, has remained relatively stable this year even as other regional currencies have weakened.

The central bank has stated that its policy was to smooth volatility in the market, rather than intervene to try to push rates in any one direction. But some business groups have argued for more forceful intervention in the markets to help boost the flagging export sector, which has dipped sharply in recent months due to the global economic crisis.

The full article can be found :HERE

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