Thai Govt Must Look For Exits As The Perfect Storm Gathers

[webfact]

EDITORIAL

Looking for exits as the perfect storm gathers

By The Nation

Yingluck govt must steer a cautious course if Thailand is to escape the economic crisis now looming

The entire world seems gripped in shock over the decision by Standard & Poor's ratings service to downgrade the US credit rating for the first time in history. Thailand is no exception. The stock market continued its nosedive yesterday while domestic gold prices hit successive all-time highs with 10 price adjustments on Monday and six by press time yesterday.

The global economic outlook is bleak and poses an extremely tough challenge to the new government, which is expected to reveal its economic policies to Parliament this month.

In actual fact, the rating downgrade had been anticipated for some time, following Standard & Poor's warning of such a move months ago in light of growing default risks. The decision was made after the wrangling between the White House and Congress, which agreed to raise the debt ceiling to avoid a default only at the last minute. To the ratings firm, this showed weak political will to maintain US creditworthiness.

What the decision guarantees is the US dollar will continue its slide against major currencies, but big sell-offs of US Treasuries are not expected given that US Treasuries account for over half of government bonds with an "AAA" rating. "Even when investors want to run away, there are few alternatives today," said an economist.

But as Standard & Poor's commented in a statement released on Monday, the US rating downgrade alone is not significant reason for fear. Rather, it is just a sign of a big storm building on the horizon. Japan has suffered from its "two lost decades", when politicians were unable to fix domestic economic problems. Worse, the euro-zone debt crisis continues to expand with the reluctance of Germany and France to increase their effort to assure euro bondholders of the currency's stability.

The storm brewing after slow growth and crises in the G3 economies (the US, Europe and Japan) could be huge. Thailand exports less than half of its total output to the group, but many others in the rest of the world depend on the three markets. The indirect impact would hit Thailand hard. More importantly, crisis is squeezing the risk appetite out of investors across the world. Last week, a US bank began levying a charge on large deposits in response to the increased number of investors seeking to bank their cash rather than face the growing risks elsewhere. As Standard & Poor's has pointed out, the international liquidity tightening experienced during 2008-2009 could be about to return.

The Yingluck government looks set to be hit by the perfect storm, and it could serve as a major point of comparison for the economic agility of the Pheu Thai administration and its Democrat-led predecessor.

During 2008 and 2009, the Abhisit government injected nearly Bt300 billion into the liquidity-strapped economy. As a result Korn Chatikavanij was named Finance Minister of the year by Banker Magazine, in recognition of his efforts to safeguard the economy from the global storm.

So, what weapons can Thirachai Phuvanatnaranubala, expected to serve as Finance Minister under Yingluck, draw to fight off this new storm?

The incoming government has not yet submitted its 2012 budget for parliamentary approval. With a proposed budget deficit of Bt350 billion for the fiscal year, it apparently leaves no room for extra funds, unless Thailand's public debt is raised from its current 42 per cent of GDP to the 60-per-cent threshold. Based on Thai GDP's net worth of Bt9 trillion, such a threshold would furnish additional borrowing of more than Bt1 trillion, enough to wipe out any liquidity crunch.

The perfect economic storm would create a dilemma for the new government: it could provide an excuse for the party to push forward with their full-fledged populist policies in a bid to boost domestic demand; or it could implement austerity policies to try and build immunity from external shocks.

Yet, as many economists, including Bank of Thailand governor Prasarn Trairatvorakul, have warned, Thailand can build up its debts but must do so in a wise manner. The new government must bear in mind that the G3 countries are in crisis today because of reckless spending. Despite huge public borrowing, they are witnessing a decline in their once proud status and this has lead to a crisis of confidence.

The Yingluck government must ask the question, if it raises borrowing, what benefits will it bring to the economy and how would those benefits be felt long term?

The Abhisit government's borrowing was aimed at short-term gains, while its investment to boost the country's long-term competitiveness was terribly low. Politicians in the US, Europe and Japan are now being bombarded by economic bombshells for their slow learning process. Whether we will join them or not will be defined by our actions in the months ahead.

-- The Nation 2011-08-10

[siampolee]

It is indeed a true fact that whether or not we like it Thailand is part of the world village and the events therein are going to affect the nation irrespective of whatever government may be in place.

However, has it ever crossed your minds that perhaps the reason the Democrats lost this last election was, "because they wanted to?".

Korn is very well respected and connected in the international world of finance and no doubt privy to the standing of Thailand's financial position.

Perhaps he has seen the coming storm and as a leading Democrat advised that the loss of the election may well be the cloud with the silver lining for the Democrats to return to power and rescue the nation as has happened over the sixty years of the party's existence yet again in the not to distant future when the financial effluent hits the fan.

The sea of international finance and international politics is indeed a murky one with many an undertow, stormy weather, whirlpool and surging tides and tsunamis along with wrecked economies washed up on the shores of the debtor nations.

Perhaps the case may be that the P.T.P. under the patronage of dear Brother no.1 may well have taken the bait and drunk deeply out of the poisoned chalice, dined upon the dish of corruption a little to heartily for their own good,

Time alone will tell.

Edited August 10, 2011 by siampolee

[garrfeild]

Sounds like the school kids won't get thier free iPads and students won't get 15000 Baht minimum starting wage, and there goes the 300 baht per day basic wage.

Edited August 10, 2011 by garrfeild

[moe666]

Darn my girlfriend needs a raise

[CosmicSurfer]

The incoming government has not yet submitted its 2012 budget for parliamentary approval. With a proposed budget deficit of Bt350 billion for the fiscal year, it apparently leaves no room for extra funds, unless Thailand's public debt is raised from its current 42 per cent of GDP to the 60-per-cent threshold. Based on Thai GDP's net worth of Bt9 trillion, such a threshold would furnish additional borrowing of more than Bt1 trillion, enough to wipe out any liquidity crunch.

Well....Seems to me that if Thaksin paid the 11 Billion Baht he owes in Taxes , it would be proof that He and his sister really have the Country's well-being at heart!

CS

Edited August 10, 2011 by CosmicSurfer

[davejonesbkk]

Its going to be soooooooooooooo interesting to see what all the PTP voters/red shirts say and who they blame when they got none of the pre election promises delivered and the 'good thaksin times' dont come back as they seem to believe will happen and actually the economy gets worse than it did under the Dems

Edited August 10, 2011 by davejonesbkk

[Thai at Heart]

Thailand record exports in June

Thailand government borrowing at 42%

Of course the world is having a tough time of it, but I reckon just about any country in Europe would swap to have these figures. Just as the article above mentions, Korn injected money into the economy, and there is potentially 18% of GPD available to stimulate the economy if required (not that they will necessarily use it).

http://www.reuters.com/article/2011/05/23/thailand-economy-forecasts-idUSBAK00319720110523

If nothing else, the USD continuing to tank means that oil is getting cheaper in baht terms, so every cloud has a silver lining. The 3.5% GDP growth at the lower end of the scale may be all that is achieved, but in global terms that would probably be considered fantastic.

[webfact]

a post containing flames deleted

[dcutman]

Thailand record exports in June

Thailand government borrowing at 42%

Of course the world is having a tough time of it, but I reckon just about any country in Europe would swap to have these figures. Just as the article above mentions, Korn injected money into the economy, and there is potentially 18% of GPD available to stimulate the economy if required (not that they will necessarily use it).

http://www.reuters.c...K00319720110523

If nothing else, the USD continuing to tank means that oil is getting cheaper in baht terms, so every cloud has a silver lining. The 3.5% GDP growth at the lower end of the scale may be all that is achieved, but in global terms that would probably be considered fantastic.

Edited August 10, 2011 by dcutman

[Thai at Heart]

Thailand record exports in June

Thailand government borrowing at 42%

Of course the world is having a tough time of it, but I reckon just about any country in Europe would swap to have these figures. Just as the article above mentions, Korn injected money into the economy, and there is potentially 18% of GPD available to stimulate the economy if required (not that they will necessarily use it).

http://www.reuters.c...K00319720110523

If nothing else, the USD continuing to tank means that oil is getting cheaper in baht terms, so every cloud has a silver lining. The 3.5% GDP growth at the lower end of the scale may be all that is achieved, but in global terms that would probably be considered fantastic.

A perfect storm brewing, is a good way to put it, and have made the same statement in other threads. Sure the economy is relatively good in Thailand and many other Asian countries. The only problem is, that one forgets is, that all Asian economies as with the rest of the world depend on some health in the big western countries. Yeh even big bad China. America and all of Europe are headed for another recession, plus others and some are already in recession.

Lets face it there is a property bubble that could burst in many economies, China and Thailand, in my opinion, could have some of the most serious problems. Many similarities going on now as in 97.

And the of course there is "The day of rage" This issue is spreading all over, and no country is immune and is not isolated in the middle east anymore. It is starting in Asia and maybe even in the EU.

Many factors make a perfect storm. The way I see it they are really starting to come together.

I never said it wasn't a good situation out there in the world economy, and Thailand will have to come up with a plan to weather the storm. However, they do have plenty of tinder in the box to stimulate the domestic economy if required. Interest rates are still high in Thailand to keep a lid on inflation, but if the USD continues to fall, oil will get cheaper which should pull some of the inflationary pressure out of the economy. If the economy shows signs of weakening, the BOT, can drop interest rates to help too, thus cheapening the baht also which will help exporters. The issue will be exports particularly for cars, and electronics to the US and EU.

As for the property sector in Thailand, the situation today to 97 is different because the vast majority of the loans to developers are baht denominated. They learnt that lesson in 97, when the banks were borrowing USD at a low rate for short term and mismatching it to baht loans at a relatively high rate for a short period. Banking 101 mistake that was. No doubt they have overbuilt in some parts of the country, but I don't think it will create the same collapse at 97.

[Robby nz]

The Yingluck government must ask the question, if it raises borrowing, what benefits will it bring to the economy and how would those benefits be felt long term?

Or will the most important question be 'what benefits will it bring to big brother'

We have to hope that the country will come first but going on BB's past records that may not be the case particularly that he has now invested so much in getting getting the country back as a family business.

[dcutman]

Thailand record exports in June

Thailand government borrowing at 42%

Of course the world is having a tough time of it, but I reckon just about any country in Europe would swap to have these figures. Just as the article above mentions, Korn injected money into the economy, and there is potentially 18% of GPD available to stimulate the economy if required (not that they will necessarily use it).

http://www.reuters.c...K00319720110523

If nothing else, the USD continuing to tank means that oil is getting cheaper in baht terms, so every cloud has a silver lining. The 3.5% GDP growth at the lower end of the scale may be all that is achieved, but in global terms that would probably be considered fantastic.

A perfect storm brewing, is a good way to put it, and have made the same statement in other threads. Sure the economy is relatively good in Thailand and many other Asian countries. The only problem is, that one forgets is, that all Asian economies as with the rest of the world depend on some health in the big western countries. Yeh even big bad China. America and all of Europe are headed for another recession, plus others and some are already in recession.

Lets face it there is a property bubble that could burst in many economies, China and Thailand, in my opinion, could have some of the most serious problems. Many similarities going on now as in 97.

And the of course there is "The day of rage" This issue is spreading all over, and no country is immune and is not isolated in the middle east anymore. It is starting in Asia and maybe even in the EU.

Many factors make a perfect storm. The way I see it they are really starting to come together.

I never said it wasn't a good situation out there in the world economy, and Thailand will have to come up with a plan to weather the storm. However, they do have plenty of tinder in the box to stimulate the domestic economy if required. Interest rates are still high in Thailand to keep a lid on inflation, but if the USD continues to fall, oil will get cheaper which should pull some of the inflationary pressure out of the economy. If the economy shows signs of weakening, the BOT, can drop interest rates to help too, thus cheapening the baht also which will help exporters. The issue will be exports particularly for cars, and electronics to the US and EU.

As for the property sector in Thailand, the situation today to 97 is different because the vast majority of the loans to developers are baht denominated. They learnt that lesson in 97, when the banks were borrowing USD at a low rate for short term and mismatching it to baht loans at a relatively high rate for a short period. Banking 101 mistake that was. No doubt they have overbuilt in some parts of the country, but I don't think it will create the same collapse at 97.

I truely hope you are on the spot.

In my eyes, I can see many bad things on the horizon. Looking at current events in the world as well as in history. History being that Thailand has done very little to improve itself with better education or a skilled work force to attract a better export base. As for a property bubble they are much like they where in 97. 90% loan to value and low occupancy rates in many areas.

I really am an optomist. But Thailand is really set up for a hard landing. When and if that perfect storm blows through.

Edited August 10, 2011 by dcutman

[geriatrickid]

Thailand has a bit of a cushion as it has room to borrow. I certainly hope there is no EU/USA style borrowing or printing of money.

Perhaps, if the government made an effort at collecting all taxes due, there might be some revenue to fund the proposed development plans.

[Colin Yai]

Sounds like the school kids won't get thier free iPads and students won't get 15000 Baht minimum starting wage, and there goes the 300 baht per day basic wage.

Hey Garrfeild come on now ,you did't REALLY swallow that crock of total BS did you?,LOL.

[Thai at Heart]

Sounds like the school kids won't get thier free iPads and students won't get 15000 Baht minimum starting wage, and there goes the 300 baht per day basic wage.

Hey Garrfeild come on now ,you did't REALLY swallow that crock of total BS did you?,LOL.

I hear there are a few surplus just about to be available from Europe.

Galaxy S Banned in EU

[webfact]

one post containing comments on moderation deleted.

Please read the forum rules

/Admin

[Bkkorupcountry]

However, has it ever crossed your minds that perhaps the reason the Democrats lost this last election was, "because they wanted to?".

Time alone will tell.

Haha, this must be self denial to the extreme.

[Thaddeus]

However, has it ever crossed your minds that perhaps the reason the Democrats lost this last election was, "because they wanted to?".

Time alone will tell.

Haha, this must be self denial to the extreme.

Or quite prophetic.

Still deciding.

[Thai at Heart]

However, has it ever crossed your minds that perhaps the reason the Democrats lost this last election was, "because they wanted to?".

Time alone will tell.

Haha, this must be self denial to the extreme.

Obviously the Dems must have employed the Baldrick Campaign Strategists Co. Ltd

Edited August 10, 2011 by Thai at Heart

[hellodolly]

Its going to be soooooooooooooo interesting to see what all the PTP voters/red shirts say and who they blame when they got none of the pre election promises delivered and the 'good thaksin times' dont come back as they seem to believe will happen and actually the economy gets worse than it did under the Dems

And this time they don't have a sugar daddy to pay them for armed peaceful protests.

[retarius]

It been rough in US and Europe...and it's going to get much, much worse. Thailand weathered the 2007/8 crisis pretty well, and look well placed for the turbulent times to come....it doesn't mean that there won't be any pain here, but maybe less than in US/EU....

[MunterHunter]

Thailand has a bit of a cushion as it has room to borrow. I certainly hope there is no EU/USA style borrowing or printing of money.

Perhaps, if the government made an effort at collecting all taxes due, there might be some revenue to fund the proposed development plans.

Starting with Thaksin and his Children, perhaps?

[Soutpeel]

Is it just me but is the term "A perfect storm" being used more and more by the Nation ?.....they must have turned a page in their idiots guide to English idioms .....so can we expect an article on a hub of perfect storms coming soon ?.....

[steveromagnino]

Thailand has a bit of a cushion as it has room to borrow. I certainly hope there is no EU/USA style borrowing or printing of money.

Perhaps, if the government made an effort at collecting all taxes due, there might be some revenue to fund the proposed development plans.

Agreed we have room to borrow; and yes, the tax regime here including taxes on obvious share marketing trading disguised as investment should be taxed, along with VAT, income tax, etc etc.

However, the idea of then taking this tax and funding non productive measures (reclaiming land at a high cost, and selling it at a low cost; rice pledging at above market rates then letting the rice rot; increasing wages to 300b IF this is above market equilibrium to balance supply and demand of minimum wage staff) should be reconsidered, and that money invested in other areas which generate long term growth (e.g. training, education, healthcare, infrastructure, etc) and the other longer terms steps like proper FTAs and govt not interfering in everything needs to be reduced.

Of course, wasting money on military toys and other pointless stuff is not that much appreciated by tax payers either (those of us who actually pay tax as required)

Edited August 10, 2011 by steveromagnino

[longway]

^ I think steveomangino should be PM

[Bagwan]

Darn my girlfriend needs a raise

I suggest a visit to the local pharmacy. They sell stuff to cure that I am told.

[Ricardo]

However, has it ever crossed your minds that perhaps the reason the Democrats lost this last election was, "because they wanted to?".

Time alone will tell.

Haha, this must be self denial to the extreme.

Obviously the Dems must have employed the Baldrick Campaign Strategists Co. Ltd

But it was such a 'cunning plan' !

[Thaddeus]

^ I think steveomangino should be PM

Seconded.

[soundman]

Off topic and personal attack/flame posts have been removed from view.

Keep it civil please.

[garrfeild]

Sounds like the school kids won't get thier free iPads and students won't get 15000 Baht minimum starting wage, and there goes the 300 baht per day basic wage.

Hey Garrfeild come on now ,you did't REALLY swallow that crock of total BS did you?,LOL.

It was a joke her even making those pledges I'm waiting to see what the red shirts will do when they realise the lies