Weaker Baht Won't Help Exports Now: Thai Central Bank

[IMA_FARANG]

A little Economics 101 Guys:

Why a weaker Baht raises pices..both locally and for exported goods.

Anyone operating a factory in Thailand, wheher a Thai or foriegner, usually imports raw matierials and manufacters a product to sell at profit.

If the Baht gets weaker the price of these foriegn raw maitierials, usually paid for or "denominated" in a foriegn currency rises.

Since the manufacturer wants to make a profit he has to raise his price for the goods he manufactures to make the same profit percentage.

It makes now difference if the product is sold in Thailand or exported. The manufacturer has to pay his employees, costs, etc. With increased costs of the raw matierials, his selling price has to increase to maintain a profit.

There is a benefit to a Thai manufacturer with a weaker Baht that makes Thai exports seem cheaper to the foriegn countries that buy them. That's good for Thailand.

But bcause Thailand primarily import raw matierials from abroad, and sells manufactured goods, a weaker Baht always makes prices for the goods rise....because the raw matierials always are more expensive.

[meom]

The statement by the Thai Central Bank misses the point.  A weaker baht will have a positive influence on exports, period.  Now it may be that the positive influence may only be lessening a downard trend.  The trend will still be in the negative, that is, a drop in exports, but the drop may not be quite as severe.

A lot of products that are exported depend upon imported oil during their production so maybe it's not as clear cut.

see above post by Ima.

Edited February 20, 2009 by meom

[Thai at Heart]

The statement by the Thai Central Bank misses the point.  A weaker baht will have a positive influence on exports, period.  Now it may be that the positive influence may only be lessening a downard trend.  The trend will still be in the negative, that is, a drop in exports, but the drop may not be quite as severe.

A lot of products that are exported depend upon imported oil during their production so maybe it's not as clear cut.

see above post by Ima.

Not just fuel. I would guess that on big ticket items like cars or white goods a majority of the value of them is probably imported and the re-exported. It would be very interesting if anyone knows what percentage of these types of large value export products are made up of domestically generated inputs (from base materials up) versus import and re-export.

As well, export prices in almost every category have been falling in line with easing oil prices and production costs, noted Rachane Potjanasuntorn, the director-general of the Export Promotion Department.

Despite all the reduction in exports, the balance of payment is still positive. So there isn't a massive "market" based pressure to push the baht down in value.

[Thai at Heart]

Double Post

Edited February 20, 2009 by Thai at Heart

[ballpoint]

Will a weaker Baht help the economy?

You're a rice buyer, you need 500 ton of rice. A cheaper Baht won't make you buy more, you will just pay cheaper.

Now you're a tourist, you have a budget of $1,000. The more Baht you have for your dollars, the more you will spend, in Baht term of course, but that's what's important for the local economy.

So you may agree that a weaker Baht won't (in the short term) help exports, but it sure will help the local tourist-based economy.

I agree on your comments on tourism, although let's face it, if the global economy doesn't turn around soon, exchange rates will have little impact on tourism as international travel will be a luxury few can afford.

On the rice (assumes same grades), while a particular buyer may not buy more because of an exchange rate, the exchange rate would impact who the importer buys from.

A tourist coming to Thailand usually has a set budget in his own currency, and a set time frame to take his holiday. Even ignoring the many hotels that quote prices in US dollars, so making the important calculation being the exchange rate of the US dollar to their own currency, they will bring a fixed amount of foriegn currency into the country and either spend all of it, or change the remainder back at the end of the holiday. In fact, if the baht devalues and they spend the same as originally planned at the higher rate, they will have more left over, change it back and take it home, leaving less foreign currency in Thailand than at the higher exchange rate. If they spend the excess, who does it go to? They probbaly can't extend their holiday, so it'll be spent on bar beers, tour operators, massages, department stores. Some will trickle down, some won't. I can see the exchange rate making some difference when planning their destination, but as hotels and airlines tend to peg their rates to the dollar, the biggest single expenses won't be changed too much.

I conclude that this is such an emotive topic due to the hopes by all residents here, myself included, that we may eke out a few more baht to our home currency each month. Trying to get a country to change its exchange rate policy based on that though is not particularly sound.

[Thai at Heart]

Tarisa says weaker baht won't help

By: PARISTA YUTHAMANOP

Published: 20/02/2009 at 12:00 AM

Newspaper section: Business

Any move to weaken the baht to help exports would ultimately prove futile, according to Tarisa Watanagase, the governor of the Bank of Thailand. The government this week suggested current exchange rates may be hurting Thailand's export competitiveness. Exports in January recorded their biggest decline in a decade with a 26.5% year-on-year contraction to $10.49 billion.

But Dr Tarisa said exchange rates had been less of a factor in export performance than the decline in demand from the United States, Japan and Europe.

A central bank study found that Thai exports would fall 1.6% for a 1% decline in economic growth for key trading partners. Every 1% decline in the value of the baht would only lift exports by 0.2%.

The baht has remained relatively stable in recent months, closing yesterday at 35.50 to the dollar. For the year to date, it has fallen 0.7%, and by 3% from 2008.

Dr Tarisa said the baht was ''in the middle of the range comparing to regional currencies'', and added that export competitiveness should not be considered only in terms of exchange rates.

The baht's competitiveness in real terms had actually improved, with the real effective exchange rate falling to 87.16 in December from 89.91 in November when indexed against 20 currencies of trade partners and competitors.

Dr Tarisa, speaking at a forum held by the Sasin Graduate Institute of Business Administration, said the rapid decline in inflation in the second half of 2008 had significantly cut business costs.

In any case, the impact of the global downturn was affecting the entire region.

''Many other countries have already experienced [steep] declines in exports. Now, we are recording a worse decline than others,'' she said. ''As a matter of fact, [the export declines] are a surprise for the region, as there was the thought that the rise in intra-regional trade could save exports. Now we know that this hope has dimmed. Our exports to China have dropped quickly in recent months.''

Pramon Suthiwong, the chairman of the Thai Chamber of Commerce, warned that the government should consider the potential increase in social disruption and stress from rising unemployment.

Migrant workers are another potential issue, he said, considering that there were two million legal immigrants registered in Thailand and an unknown number of illegal workers.

http://www.bangkokpost.com/business/econom...baht-won-t-help

So I presume we should probably expect the BOT to not pursue a policy of devaluation.

[samran]

You base your comments that the majority of foreign investors or local companies investing abroad don't like the current government on what? Let me hazard a guess. Maybe it is just the opinion of "we".

My comments are based on a quick, non scientific, survey of Thai business owners I know.

For foreign investors, things are even more clear, for the time being Thailand is a "no go" area.

Are you talking about FDI? If you are, the biggest impact on investors, anywhere, is the economy. In general, investment has tanked and right now, almost everywhere is a no go area. For the record, FDI was relatively weak under the past government as well. It has nothing to do with the current government, which is looked on as an improvement.

agree, the economy has tanked globally. Just that it has happened to coincide with thai political instability doesn't mean that low FDI is because of political risk...though people surely would love to blame most things on it.

In terms of interest...it is still there. In recent months I've worked with a middle eastern concern looking at promoting a $10 billion dollar development here (yes that is a "b" in from of the "..illion"), worked for a 5 star hotel chain looking to invest and we are doing work for a LSE listed concern here.

We also represent some the the blue chip Thai firms, who if you look at their foreign shareholdings are above 50% (via NVDR's) and the only exiting that has happened was from funds who sold to cover their losses elsewhere. Their shareprices remain strong...at 2007 levels, which by any standard, is strong.....

[Pierrot]

A tourist coming to Thailand usually has a set budget in his own currency, and a set time frame to take his holiday. Even ignoring the many hotels that quote prices in US dollars, so making the important calculation being the exchange rate of the US dollar to their own currency, they will bring a fixed amount of foriegn currency into the country and either spend all of it, or change the remainder back at the end of the holiday. In fact, if the baht devalues and they spend the same as originally planned at the higher rate, they will have more left over, change it back and take it home, leaving less foreign currency in Thailand than at the higher exchange rate. If they spend the excess, who does it go to? They probbaly can't extend their holiday, so it'll be spent on bar beers, tour operators, massages, department stores. Some will trickle down, some won't. I can see the exchange rate making some difference when planning their destination, but as hotels and airlines tend to peg their rates to the dollar, the biggest single expenses won't be changed too much.

I conclude that this is such an emotive topic due to the hopes by all residents here, myself included, that we may eke out a few more baht to our home currency each month. Trying to get a country to change its exchange rate policy based on that though is not particularly sound.

You're absolutely right, the exchange rate doesn't change anything for airlines and 5 stars hotels. But for small people in the street it does.

As a foreign tourist, if I've more Baht for my $, I will spend more on street vendors, restaurants, taxis ... And if prices are really attractive, where I planned to spend $100 I’ll now spend $200 !

As a down-to-earth business man, Thaksin understand that, that’s why he’s able to take measure that are popular with street people.

Abhi just cares about his friends who own airlines and five stars hotels. As I said before, devaluation just makes the Benz more expensive ….

[Pierrot]

Double post

Edited February 20, 2009 by Pierrot

[Thai at Heart]

A tourist coming to Thailand usually has a set budget in his own currency, and a set time frame to take his holiday. Even ignoring the many hotels that quote prices in US dollars, so making the important calculation being the exchange rate of the US dollar to their own currency, they will bring a fixed amount of foriegn currency into the country and either spend all of it, or change the remainder back at the end of the holiday. In fact, if the baht devalues and they spend the same as originally planned at the higher rate, they will have more left over, change it back and take it home, leaving less foreign currency in Thailand than at the higher exchange rate. If they spend the excess, who does it go to? They probbaly can't extend their holiday, so it'll be spent on bar beers, tour operators, massages, department stores. Some will trickle down, some won't. I can see the exchange rate making some difference when planning their destination, but as hotels and airlines tend to peg their rates to the dollar, the biggest single expenses won't be changed too much.

I conclude that this is such an emotive topic due to the hopes by all residents here, myself included, that we may eke out a few more baht to our home currency each month. Trying to get a country to change its exchange rate policy based on that though is not particularly sound.

You're absolutely right, the exchange rate doesn't change anything for airlines and 5 stars hotels. But for small people in the street it does.

As a foreign tourist, if I've more Baht for my $, I will spend more on street vendors, restaurants, taxis ... And if prices are really attractive, where I planned to spend $100 I’ll now spend $200 !

As a down-to-earth business man, Thaksin understand that, that’s why he’s able to take measure that are popular with street people.

Abhi just cares about his friends who own airlines and five stars hotels. As I said before, devaluation just makes the Benz more expensive ….

I think you will find that people on the "street" so to say, would liken a forced devaluation of the baht very much to 97. Not a particularly happy time in Thailand if you remember.

You are neglecting to connect all the dots. This is not as simple as to say baht down, cost of exports down, imports up. Thailand is so reliant on imported oil, that thank god at this time of economic trouble the world oil price has come down so significantly. Will it stay this low? I doubt it.

Considering food alone, the cost of fertilisers, pesticides and fuel to transport foodstuffs around would be significantly influenced by a depreciation in the baht. Do people here really want the government to pursue a policy that makes basic foodstuffs more expensive?

The cost of everything in Thailand is so much tied to events outside the country because of the need to import so many raw materials. To announce actively pursuing a devaluation policy would be political suicide and as the BOT has stated would probably have little true effect.

In addition I and I suspect most of us don't know the levels of foreign denominated corporate debt. Maybe some very major companies would crumble under a mountain of debt if the baht was actively pushed to lower levels. The final price of an imported car is so bloated by duties and tax, the import price is almost insignificant. A reduction in duty will have far more effect than a 10% move in the exchange rate.

[samran]

A tourist coming to Thailand usually has a set budget in his own currency, and a set time frame to take his holiday. Even ignoring the many hotels that quote prices in US dollars, so making the important calculation being the exchange rate of the US dollar to their own currency, they will bring a fixed amount of foriegn currency into the country and either spend all of it, or change the remainder back at the end of the holiday. In fact, if the baht devalues and they spend the same as originally planned at the higher rate, they will have more left over, change it back and take it home, leaving less foreign currency in Thailand than at the higher exchange rate. If they spend the excess, who does it go to? They probbaly can't extend their holiday, so it'll be spent on bar beers, tour operators, massages, department stores. Some will trickle down, some won't. I can see the exchange rate making some difference when planning their destination, but as hotels and airlines tend to peg their rates to the dollar, the biggest single expenses won't be changed too much.

I conclude that this is such an emotive topic due to the hopes by all residents here, myself included, that we may eke out a few more baht to our home currency each month. Trying to get a country to change its exchange rate policy based on that though is not particularly sound.

You're absolutely right, the exchange rate doesn't change anything for airlines and 5 stars hotels. But for small people in the street it does.

As a foreign tourist, if I've more Baht for my $, I will spend more on street vendors, restaurants, taxis ... And if prices are really attractive, where I planned to spend $100 I’ll now spend $200 !

As a down-to-earth business man, Thaksin understand that, that’s why he’s able to take measure that are popular with street people.

Abhi just cares about his friends who own airlines and five stars hotels. As I said before, devaluation just makes the Benz more expensive ….

you must be kidding, political differences aside, you have no clue....

exchange rate fluctionations mean everything for hotels and airlines. Airlines hedge against FOREX fluctuations all the time. Another tourism orientated economy - Australia - suffered hugely when the AUD reached near parity to the USD in 2007/2008- precisely because it made Australia an relatively more expensive place to visit.

The street vendors that you visited in the tourist orientated areas aside, the 1997 economic crash in Thailand, and the resultant devaluation of the baht meant very little to the 'man on the street' selling noodles, as they were not exposed to foreign currency liablilities unhedged (unlike 'smart' big business that went on to support Dear Leader - and blame the west for all their troubles).

And who was a deputy PM in the government which sent the Thai economy tanking in 1997? Only one guess there....

Edited February 20, 2009 by samran

[Pierrot]

you must be kidding, political differences aside, you have no clue....

exchange rate fluctionations mean everything for hotels and airlines. Airlines hedge against FOREX fluctuations all the time. Another tourism orientated economy - Australia - suffered hugely when the AUD reached near parity to the USD in 2007/2008- precisely because it made Australia an relatively more expensive place to visit.

The street vendors that you visited in the tourist orientated areas aside, the 1997 economic crash in Thailand, and the resultant devaluation of the baht meant very little to the 'man on the street' selling noodles, as they were not exposed to foreign currency liablilities unhedged (unlike 'smart' big business that went on to support Dear Leader - and blame the west for all their troubles).

And who was a deputy PM in the government which sent the Thai government tanking in 1997? Only one guess there....

What is the point of hedging? To protect against fluctuation, right ? It's my point. Big business are able to use sophisticated financial instruments to protect them against currency variation, street vendors can't.

Then you say Australia suffered because the Australian Dollar was too expensive, so you agree with me that a weaker Baht will help the economy, right ?

[Pierrot]

Considering food alone, the cost of fertilisers, pesticides and fuel to transport foodstuffs around would be significantly influenced by a depreciation in the baht. Do people here really want the government to pursue a policy that makes basic foodstuffs more expensive?

The cost of everything in Thailand is so much tied to events outside the country because of the need to import so many raw materials. To announce actively pursuing a devaluation policy would be political suicide and as the BOT has stated would probably have little true effect.

If I follow you the cost of food has nothing to do with local prices but it’s based on international “events”. Why not. Then it means that food should cost the same in Chiang Mai, London or New York …

Maybe you should check your facts before making such bold statements …

[samran]

you must be kidding, political differences aside, you have no clue....

exchange rate fluctionations mean everything for hotels and airlines. Airlines hedge against FOREX fluctuations all the time. Another tourism orientated economy - Australia - suffered hugely when the AUD reached near parity to the USD in 2007/2008- precisely because it made Australia an relatively more expensive place to visit.

The street vendors that you visited in the tourist orientated areas aside, the 1997 economic crash in Thailand, and the resultant devaluation of the baht meant very little to the 'man on the street' selling noodles, as they were not exposed to foreign currency liablilities unhedged (unlike 'smart' big business that went on to support Dear Leader - and blame the west for all their troubles).

And who was a deputy PM in the government which sent the Thai government tanking in 1997? Only one guess there....

What is the point of hedging? To protect against fluctuation, right ? It's my point. Big business are able to use sophisticated financial instruments to protect them against currency variation, street vendors can't.

Then you say Australia suffered because the Australian Dollar was too expensive, so you agree with me that a weaker Baht will help the economy, right ?

Airlines hedge because they may have their revenues in once currency and their costs in another...that is why they hedge.

The street vendor has his or her revenues and costs in the same currency, hence no need to hedge. Most of their inputs come from local sources, so again, no indirect FOREX exposure, and apart from the LNG for their noodle stove (which is linked to Singapore market prices) there is little exposure. Furthermore, in 1997 you didn't see street vendors go to the wall (nor did you see poor people starve)...which was my point that FOREX means nothing to them.

As for the Australian dollar being expensive, a devaluation helps to a point, but it is a short term remedial fix (undertaken by weak politicians) which does nothing to help in the longer term. You need to be productive and competitive, able to do things well inspite of an adverse exchange rate. Though I used the AUD example, Australia - even at this stage - looks set to avoid recession, precicely cause its economy is one of the most flexible in the world (and yes, a weak AUD does help exporters for now).

Thailand on the other hand, has had successive governments squib the opportunity to reform the economy. The democrats post 1997 set in motion a plan for reforms, and this mantle was nominally taken by Dear Leader, but he soon dropped the idea when he realised that is better for him to have more of the economy under his direct control via SOE's. He only went ahead with the PTT privatisation cause his mates had stiched up all the shares before they went public (and made a massive profit). AOT was a similar deal.

How do I know? I worked for his administration.

[Time Traveller]

When the rest of the world is up to their eyeballs in debt, their banks are failing, unemployment is increasing and people afraid of losing their jobs, then I don't think it really matters if those Thai exports of (cars/clothes/electronics/etc) cost X,XXX Baht or cost X,XXX less 15%. So, it's pretty obvious that if the Baht weakens it really isn't going to improve export situation.

Also for the industries that are involved in "value added" exports such as electronics, it doesn't really matter where the baht is since they are import then re-export. However, for agriculture the problem is not really the exchange rate but more importantly the international price of (rice/tapioca/rubber/palm oil).

So in conclusion why should the BOT want the Baht to weaken???

[SmugFarangBore]

And who was a deputy PM in the government which sent the Thai economy tanking in 1997? Only one guess there....

I presume you mean Thaksin.

Problem is, he was appointed deputy PM after the Baht was floated in 97, which was the spark that ultimately caused the crisis.

[Old Man River]

When the rest of the world is up to their eyeballs in debt, their banks are failing, unemployment is increasing and people afraid of losing their jobs, then I don't think it really matters if those Thai exports of (cars/clothes/electronics/etc) cost X,XXX Baht or cost X,XXX less 15%. So, it's pretty obvious that if the Baht weakens it really isn't going to improve export situation.

Also for the industries that are involved in "value added" exports such as electronics, it doesn't really matter where the baht is since they are import then re-export. However, for agriculture the problem is not really the exchange rate but more importantly the international price of (rice/tapioca/rubber/palm oil).

So in conclusion why should the BOT want the Baht to weaken???

I don't think they should weaken it based on the comments I have already made, but some good points have been raised by others in this thread that a weak THB may well help the tourism industry (this assumes there are still people in this economic mess that are interested in international travel).

[h90]

A little Economics 101 Guys:

Why a weaker Baht raises pices..both locally and for exported goods.

Anyone operating a factory in Thailand, wheher a Thai or foriegner, usually imports raw matierials and manufacters a product to sell at profit.

If the Baht gets weaker the price of these foriegn raw maitierials, usually paid for or "denominated" in a foriegn currency rises.

Since the manufacturer wants to make a profit he has to raise his price for the goods he manufactures to make the same profit percentage.

It makes now difference if the product is sold in Thailand or exported. The manufacturer has to pay his employees, costs, etc. With increased costs of the raw matierials, his selling price has to increase to maintain a profit.

There is a benefit to a Thai manufacturer with a weaker Baht that makes Thai exports seem cheaper to the foriegn countries that buy them. That's good for Thailand.

But bcause Thailand primarily import raw matierials from abroad, and sells manufactured goods, a weaker Baht always makes prices for the goods rise....because the raw matierials always are more expensive.

Well, we sell hydraulic seals. All the material we buy from Austria (and there are only Austrian companies). We sell 98 % inside Thailand.

And our price depends almost only on the raw material price.

So for exports It would not help, actually all our money would mean less purchasing power, so we would have even a slight disadvantage on exports.

On the local sales we would get more expensive (we calculate our prices on the limit due to strong competition).

[Pierrot]

A little Economics 101 Guys:

Why a weaker Baht raises pices..both locally and for exported goods.

Anyone operating a factory in Thailand, wheher a Thai or foriegner, usually imports raw matierials and manufacters a product to sell at profit.

If the Baht gets weaker the price of these foriegn raw maitierials, usually paid for or "denominated" in a foriegn currency rises.

Since the manufacturer wants to make a profit he has to raise his price for the goods he manufactures to make the same profit percentage.

It makes now difference if the product is sold in Thailand or exported. The manufacturer has to pay his employees, costs, etc. With increased costs of the raw matierials, his selling price has to increase to maintain a profit.

There is a benefit to a Thai manufacturer with a weaker Baht that makes Thai exports seem cheaper to the foriegn countries that buy them. That's good for Thailand.

But bcause Thailand primarily import raw matierials from abroad, and sells manufactured goods, a weaker Baht always makes prices for the goods rise....because the raw matierials always are more expensive.

Obviously you're not in I/E business.

I'll try to keep it simple.

We start with 1Baht = US$1

I import stuff ($100), then I have local cost (100 Baht = $100) , so total cost is $200

Now 1 Baht = US$ 0.9

import stuff ($100) + local cost (100 Baht = $90) , so total cost is $190

Now explain me how a cheaper Baht makes things more expensive for export ?

[jopham]

I'll try to keep it simple.

We start with 1Baht = US$1

I import stuff ($100), then I have local cost (100 Baht = $100) , so total cost is $200

Now 1 Baht = US$ 0.9

import stuff ($100) + local cost (100 Baht = $90) , so total cost is $190

I'll try to keep it simple.

We start with 1Baht = US$1

I import stuff ($100), then I have local cost (100 Baht = $100) , so total cost is 200 BAHT

Now 1 Baht = US$ 0.9

import stuff ($100) EQUELLS 110 BAHT PLUS MORE INPORT DUTY + local cost (100 Baht = !00 BAHT) , so total cost is 210 Baht PLUS MORE IMPORT DUTY

[Thai at Heart]

Well in that case subscribe to the Economist and believe that the Big Mac index is true in the short term value all other variables being equal.

Maybe you should check your before thinking that exports from this country are completely disconnected from exports. Even rice exports rely on oil for fertiliser.

I am reliably informed that 80% of a Camry in Thailand started beyond these shores. Only the tyres, rubber seals and the rubber parts are sourced locally. All the plastics, metal, and electronic parts were imported and I am meaning iron ore, aluminium ore, and crude to make the plastics. So before you try to claim that Thailand is a creative, exporting hub please remember that 99% of the design work was done in Japan and Europe and all the mineral imports came from overseas.

This is not doing Thailand down, but it is distinctly lacking in natural ores.

This is why with a drop in exports, imports drop commensurately.

Rent, wages, input cost sourced locally, insurance, rental, all contribute to the BIG MAC index. Do you honestly believe markets for currency are that pure and based on PPP?

Never has it been proven that PPP is a true measure of the value of an economy and you are underestimating Thailands reliance on imports of it's major exports. I am sure that someone in Toyota has a figure somewhere, but it maybe 85:100 or maybe more.

We can hope that Thailand will feed the world and it probably could, but it would need the rest of the world to return to the village or is there going to be a duty on that rice export sir?

Edited February 20, 2009 by Thai at Heart

[IsaanAussie]

Will a weaker Baht help the economy?

You're a rice buyer, you need 500 ton of rice. A cheaper Baht won't make you buy more, you will just pay cheaper.

Now you're a tourist, you have a budget of $1,000. The more Baht you have for your dollars, the more you will spend, in Baht term of course, but that's what's important for the local economy.

So you may agree that a weaker Baht won't (in the short term) help exports, but it sure will help the local tourist-based economy.

Pierrot,

WTGR, I must disagree on the export impact of a weaker baht. I believe your analysis is overly simplistic in todays world of global trade. Whilst rice remains a significant exported commodity it is far from the top in the list of exports and has been for a number of years. The Thai government has concentrated on developing the advanced manufacturing capabilities of the nation at the expense of the agriculturally involved majority of its people. With production capacity growing elsewhere, Thai rice must be affordable to be sold into export markets.

Companies like Toyota and GM mentioned above have very complex import and export purchasing arrangements globally and Thailand has become an important player in the light commercial production arena globally. If you want a simplistic view of the impact, take a look at the export statistics of pickups to two of the most important markets Australia and Britain whose currencies have both depreciated by some 30% against the baht.

Finally take a look at the impact on the 100% Thai owned suppliers that sit in the 3rd and 4th tier of the car company supply chains here. GM has sneezed and those guys have the flu already.

I find the reference article logic flawed. It is comparing the changes in exchange rates and export earnings between countries that have little in common other than geography. If the Thai government is going to use that analysis, then I would humbly suggest that they take a look at the appreciation of the Thai Baht against the USD over the last month before acting.

Isaanaussie

[IsaanAussie]

Not just fuel. I would guess that on big ticket items like cars or white goods a majority of the value of them is probably imported and the re-exported. It would be very interesting if anyone knows what percentage of these types of large value export products are made up of domestically generated inputs (from base materials up) versus import and re-export.

OK here is one example. There is no domestic manufacturer of sheet steel used in automotive external body panels in Thailand or in Australia where I come from. That means that the steel used in 100% of the exterior panels on over 1 million cars produced in Thailand is imported from or via Japan.

[wolfmanjack]

Will a weaker Baht help the economy?

You're a rice buyer, you need 500 ton of rice. A cheaper Baht won't make you buy more, you will just pay cheaper.

Now you're a tourist, you have a budget of $1,000. The more Baht you have for your dollars, the more you will spend, in Baht term of course, but that's what's important for the local economy.

So you may agree that a weaker Baht won't (in the short term) help exports, but it sure will help the local tourist-based economy.

I am in the export business. My two main competitors are Indonesia and Vietnam. In 2003 the average for the baht was 207 IDR and 387 VND. So far in 2009 the average is 330 IDR and 513 VND. The baht has strengthened considerably against these 2 currencies. If they weakened the baht to be competitive with these two currencies again I would have a dramatic increase in business. I know this for a fact because I am still getting inquiries from new customers asking me to compete on price with vietnam and indonesia. They like my quality better but the price difference makes most go for the lower price even when I only take a 10% profit.

[mijan24]

You base your comments that the majority of foreign investors or local companies investing abroad don't like the current government on what? Let me hazard a guess. Maybe it is just the opinion of "we".

My comments are based on a quick, non scientific, survey of Thai business owners I know.

For foreign investors, things are even more clear, for the time being Thailand is a "no go" area.

Your reference to - we being the polite form of I" was amusing especially when one (I) or in your venacular (we) look at your use of had instead of has and the list goes on -but that is only a side smirk, the real mirth generates from the use of "POLITE" by one (you) so crass with his (your) normal; cryptic comments.

non scientific, survey of Thai business owners I know the non scientific fits the mode but is the Thai business owner TBOs (I) or (morish polite we) used in the plural or poetic sense? Or are we confusing the isuue by referring to TBO when it could read "in dicussions with ones-self".

[Seneque]

Will a weaker Baht help the economy?

You're a rice buyer, you need 500 ton of rice. A cheaper Baht won't make you buy more, you will just pay cheaper.

Now you're a tourist, you have a budget of $1,000. The more Baht you have for your dollars, the more you will spend, in Baht term of course, but that's what's important for the local economy.

So you may agree that a weaker Baht won't (in the short term) help exports, but it sure will help the local tourist-based economy.

I am in the export business. My two main competitors are Indonesia and Vietnam. In 2003 the average for the baht was 207 IDR and 387 VND. So far in 2009 the average is 330 IDR and 513 VND. The baht has strengthened considerably against these 2 currencies. If they weakened the baht to be competitive with these two currencies again I would have a dramatic increase in business. I know this for a fact because I am still getting inquiries from new customers asking me to compete on price with vietnam and indonesia. They like my quality better but the price difference makes most go for the lower price even when I only take a 10% profit.

You are right ... we have to compare what is comparable. The exact same product manufactured in Vietnam and Thailand is way cheaper in Vietnam ... I used to manufacture in Thailand, i moved to Vietnam ... simple solution ... exchange value of the currency is in favor of Vietnam. Thailand is losing when the currency is not in line with their main competitors (i could also mention the cost of manpower but this is for another time)

[xbusman]

Wow, not alot of those fancy Wall Street financial wizards on Thaivisa, they must all be looking for jobs on ajarn.com

Unfortunately, I think Tarisa is right but not for the same reasons everyone else does.

First, I think it helps to break out the different types of exporters and look at the impact of the strong baht.

I put them into three categories and you can view each differently. First we should agree on what Thailand offers a manufacturer and that is strictly cheap unskilled labor. Assembly, sewing, etc. Value added services like educated workforce you go to India or Korea, high tech tooling you go to Taiwan, etc. When we talk about Thailand, we are talking about manual labor and as such our direct competitors are China, Vietnam, Cambodia, Sri Lanka and Indonesia in this part of the world.

So first, lets look at the exporters.

Small exporters Thai based. Like my company actually. Lets just say under 5M US in sales yearly. Typically, this group makes up a bigger percentage than what is apparent. I bet here its about 60 percent of the total exports. You are going to find everything in this category from clothes to silk flowers to hospital supplies. This group generally buys everything locally and imports about nothing. Lets use clothing as an example.

Everything for making clothes was in Thailand except for sewing machines and cotton. The looms, the dying, even polyester was made here, everything. The cotton yarn that is used in a shirt makes up less than 5% of the shirts cost and currency fluctuations have little to no impact on the costing structure of the finished product. In fact, over the past few years of the strong baht, I have watched the fabric industry just evaporate as it became much cheaper to buy from Chinese producers. Button and zipper manufacturers closed, fabric mills closed, a huge part of supporting infrastructure has died and blown away because of the strong baht. Eventually we saw that the labor was too expensive too and the small sewing shops started closing and relocating to Vietnam or lost their jobs to China.

For the past two years, I have been frantically moving my products out of Thailand into other countries along with millions of Thai business owners. The economics are real simple. Lets say I make a widget which I sell in the US for $1. Every time I visit the customer, on his desk are five samples from China which he can buy for $.80 delivered and suitable quality. The formula is simple. Here it is for you non financial types:

Materials + Labor + Freight + Overhead

You then modify by currency and end up with....

Profit (hopefully)

Materials is about 60% of the product cost so a 10% increase in baht value decreases my product cost by 6%.

Labor is paid in baht but the strong baht means that they are paid about 30% more than chinese labor so I pay an additional 12% for labor against my competitors.

Freight rates are much much better out of China, I pay a 20% premium out of Thailand which adds about a 3% penalty to my costs.

Overhead.... for simplicity sakes, lets say this is the cost of doing business in any one country. Thailand is quite expensive and difficult. The bribes to customs, the work permit and banking fiasco mess, for us small business owners it adds up. China, Taiwan and Korea, while not good are much better at it, Singapore is simply stellar (notice that they are a world financial powerhouse, this is reason one two and three, after all they have no resources or labor). So for overhead we are paying a slight premium over the other third world countries but not enough to really matter.

Its when you add up the other factors caused by the high baht that you pack your bags. A strong baht adds a minimum 15% to my costs against my competitors. If all you are selling on the world market is cheap labor, then a strong baht makes your labor too expensive.

So my company, and untold numbers of Thai business owners, have been desperately and quickly moving production out of Thailand for the past three years. With my products (and they vary greatly) my detailed costing structure points to 38 baht as the threshold before I consider manufacturing in Thailand. That of course changes with each product and there is a convenience charge. For us small guys, a lot of time I will look at a product and knowing I can make 200,000 baht a year more by making it in China I will pass and make it here, paying 200,000 baht more for the same thing. The way I look at it is that by the time I pay for airline tickets to go yell at the manufacturer, warranty costs because I did not check the product with my trusted Thai employees before shipping, lost days of golf while I get deep vein thrombosis on some dirty airplane.... Its worth 200,000 baht to work here. We are however, small potatoes and can only stand so much pain. The strong baht has already done its damage, the big ticket items are all moved, relocated to more profitable climes, the small jobs are still here out of convenience... for now.

In this regard, Tarisa is right. They cant bring the baht back enough to recapture this large segment of the market and reopen factories. If 38 is my threshold, it would need to be 40 before I really thought about dumping all those new vendors in India, Indonesia and China. A baht at 40 would cause problems with the oil imports and purchases of Grippen fighters so reluctantly I agree with Tarisa here.

The next group is the big internationals. I bet they add a lot of money to the economy. So for you Harvard grads, here is how it works.

I sit in Tokyo in a little grey cubicle and want to build a car. I put out a RFQ and buy the cheapest tires, cheapest sheet metal, cheapest foam that meets my requirements. I get it from all over the world. A lot of it from the US amazingly enough, japanese companies who manufacture knobs in Marysville Ohio. I run it through my costing and find its cheaper to ship it from Marysville than make it in Udon Thani. Why would that be? Cause there is no labor in it and all the materials are made in Ohio.

So I ship all these bits to Thailand and they come through customs free, get assembled, and leave thailand free. All I add here is the labor, and that aint much. About 200 man hours to build a truck using about $6000 of materials. So your assembly labor is about $250 and again, Tarisa is right. Moving the exchange rate wont make a rats @ss difference to our Tokyo car builder. He has different problems that wont be solved by saving $25 on labor.

All the accounting is done in yen. They dont buy things in Thailand, they dont import things into thailand at thai baht. They only determine the value added at baht rates and that aint much in the overall picture. Once you get those boys to put up brick and mortar locally, they are in for the duration and the baht would have to go to parity before they had any heartburn and starting looking to move. The real problem is with new factories. You can bet the Tokyo bean counters are looking for a place to manufacture their 2020 models and doing some deep voodoo projections on the value of the baht. In the end though, stability will count for more than currency, particularly on such a small part of the value added. The airport closure, coup, and FBA had a much bigger part in the collapse of foreign investment than the value of the baht. Tarisa would agree but the Finance ministry might not like that.

So that leaves our big Thai international exporters for last. CP Meiji, Siam Cement, the big rice and fish boys, rubber moguls, and last but not least Red Bull. Did I miss anyone? Take a quick look at the list and see if you can make it more comprehensive. Most of these companies are trading companies that buy agricultural products and/or sell simple commodity based goods from natural resources. Does Thailand have a Samsung or car brand or big international named anything? I bet they do but for all practical purposes they are few and far between. Mostly its all commodity based so lets use CP Charoen as an example. Say the price of rice is $540 per ton world market this morning and the baht gets stronger by 1 baht per dollar. What happens... Here is basically what goes down. CP will either pay the farmers less for the rice or someone will steal rice from government warehouses, or the government will reduce taxes for the chairman of the Commodities export board, or funky grades will be added to the shipment or or or or or ....... Those big companies have it pretty dialed and can withstand some fluctuation, in Thailand they always seem to find an answer, usually on the backs of the poor. Those companies are taking a battering however, and in turn all the people that work or produce for them but they are surviving. From Tarisa's perspective the owner of CP has enough money already and spreading a few baht around the poor farmers wont improve things enough to make a weak baht worth it so I guess thats the ugly trade off made by central bankers when they must.

So, I agree with Tarisa.

The damage has been done to the small guys. It will takes years of work to rebuild that group, and with Thailands politics, poor infrastructure and lack of educational investment, maybe not in our lifetime.

The big international guys have problems that make the value of baht (almost irrelevant during good time) laughable.

The few big international locals pale compared to the social unrest that could be caused with oil imports or grippen fighters. Also, those huge infrastructure projects.... they require international resources and financing that are easier and cheaper with a strong baht.

Between the Thai circus that is called a government, and the collapse of the debt driven society in the west that has been buying all this junk from asia, the poor baht is a non entity. I think Tarisa is doing the best she can to maintain some stability amidst the complete and utter crisis brought on by self serving politicians and thieving fraudulent investment banks in the west. Glad I dont have to make those choices or deal with the chairman of CP Charoen.

[Thai at Heart]

Will a weaker Baht help the economy?

You're a rice buyer, you need 500 ton of rice. A cheaper Baht won't make you buy more, you will just pay cheaper.

Now you're a tourist, you have a budget of $1,000. The more Baht you have for your dollars, the more you will spend, in Baht term of course, but that's what's important for the local economy.

So you may agree that a weaker Baht won't (in the short term) help exports, but it sure will help the local tourist-based economy.

I am in the export business. My two main competitors are Indonesia and Vietnam. In 2003 the average for the baht was 207 IDR and 387 VND. So far in 2009 the average is 330 IDR and 513 VND. The baht has strengthened considerably against these 2 currencies. If they weakened the baht to be competitive with these two currencies again I would have a dramatic increase in business. I know this for a fact because I am still getting inquiries from new customers asking me to compete on price with vietnam and indonesia. They like my quality better but the price difference makes most go for the lower price even when I only take a 10% profit.

What are you exporting?

[tango]

Unfortunately, I think Tarisa is right but not for the same reasons everyone else does

...

The big international guys have problems that make the value of baht (almost irrelevant during good time) laughable.

The few big international locals pale compared to the social unrest that could be caused with oil imports or grippen fighters. Also, those huge infrastructure projects.... they require international resources and financing that are easier and cheaper with a strong baht.

Between the Thai circus that is called a government, and the collapse of the debt driven society in the west that has been buying all this junk from asia, the poor baht is a non entity. I think Tarisa is doing the best she can to maintain some stability amidst the complete and utter crisis brought on by self serving politicians and thieving fraudulent investment banks in the west. Glad I dont have to make those choices or deal with the chairman of CP Charoen.

Nicely summarized, XB. Thank you.

[Ricardo]

If the $:Baht was fairly solid round 34.9 in recent months, but has slipped in the past week to 35.4799 today, is there a slow steady weakening now underway, with the discreet blessing of the BoT ?