Former Finance Minister Korn Warns Govt Against Thai Baht Devaluation

[Billmont]

The heady days of THB70+ to 1GBP was in the main due to the strength of Sterling and not the weakness of the Baht. Sterling and the USD have both dropped considerably whereas the Baht has only moderately strengthened. Having a weak currency over the past few years is seen as a major advantage and the UK was very happy to see Sterling drop and actively encouraged it. Currencies that have maintain their actual value or even strengthened have been at a disadvantage to currencies that have moved in the opposite direction and exports are a major consideration. Just follow the War of Words between the USA and China of the alledged controlled weakness of the Yuen. Vietnam devalued to assist exports and for no other economic reason. Regarding the opposition and ex Thai Finance Minister saying that a weak Baht would be bad for Thailand, well to coin a well known phrase, "He would say that wouldn't he?". Most opposition parties worldwide just disagrees on principle to any in power governments position and pray that they will not be successful. A moderately weaker Baht would be good for Thailand, helping exports and the inflow of finace and new businesses, providing it is controlled and not too fast. Many Farangs would also see the benefit by way of a salary increase. Good news all around.

Umm, there was the small issue of the financial crisis that went round Asia at the end of the 90's. Yes the pound was relatively strong, but the thai economy and many others in the region were in a mess. Now the shoe is on the other foot. Thailand has a huge stock of Forex that it has accumulated over the last 5 years or so, in a very grand effort to keep the baht weak.

There is a big issue in Thailand with the value of oil imports, which Thailand has to do to fund its economy. Oil is a disproportionately important commodity here because they haven't invested in rail. Bear in mind that many of the businesses in Thailand rely enormously on imported commodities to function, many are simply bolting things together and are not "building" things per se. This means that a weakening of the baht has a very big effect on industry.

So yes, I believe the baht is at about the right value, would it make an enormous difference to "us" if the baht went to 33 to the USD? Not really. Would it push up oil and raw material prices even further which would feed throught the economy very quickly, yes. Is the baht likely to collapse, no? They are in a very strong position in terms of forex. Are the majority of exporters i.e. cars/electronics asking for a weaker baht? Not particularly since an enormous amount of the inputs they need would be pushed up in price by devaluing the baht.

Until the US and Europe get their fiscal house in order, the value of the baht will hang around more or less where it is. If, these countries don't sort it out, might the baht get stronger? Yes, but the government can always reduce interest rates to stabilise it.

Long story short, devaluing the baht isn't as beneficial to the country as many think, and doing so isnt' quite as easy as it appears when the rest of major economies of the world have enormous currency weakness.

I must agree with my two learned friends that the Baht did weaken in 1997, also in 1984 but how far do you want to go back?

In 1997 the Thai Government refused to devalue but did float the Baht but after after 3 years the Baht had stabilised. This was at the time that Sterling was strong and the recent relative strength of the THB over the last 5 to 7 years is in the main due to, in my opinion, the combined weakness of both the GBP and the USD. What is surprising is that the Baht has remained stable whenThailand has been unstable due to the Coup, the political instability, the floods. However Thailand continues to see growth that the UK and the USA can only dream about and the main cause of the weakness of the Pound and the Dollar.

[12DrinkMore]

We have this thread at regular intervals. With the usual expert analysis deciding that the THB should be devalued by 30% or so, primarily to assist with individual finances where the income is derived from the basket-case economies of EUR, USD and GBP, in which the official policy is certainly NOT to increase the strength of the currency; zero interest rates, humongous money printing and trading deficits.

The Bank of Thailand tries to maintain the THB against a group of Asian currencies (and has amassed a huge amount of foreign reserves) and keep the rate of inflation low. They are not about to reduce the interest rate, as inflation is much more of a threat and the economy hardly needs a boost from lower interest rates. Thailand is a net exporter with the ensuing upward pressure on the THB.

The current policy of maintaining stability within the Asian region is, IMO, far better than round after round of competitive devaluations, as the "Powers That Be" try to manipulate currencies in the name of increasing exports (although doubtless to benefit their own pockets along the way).

There is also an element of global rebalancing, where the worlds exporters are reaping the benefits of their own labour, and not exporting them to the West. This, IMO, is quite clear, where in Thailand over the last 15 years I have seen a steady increase in living standards among the Thais, and essentially no improvement among the low and middle classes in the West.

I cannot see any reason for the GBP/EUR/USD to become massively stronger in the next few years. And unless the politicians manage to stem the huge and increasing deficits, and there is no sign that they are able to, the western currencies are in for a long slide down.

Edited March 28, 2012 by 12DrinkMore

[personchester]

The heady days of THB70+ to 1GBP was in the main due to the strength of Sterling and not the weakness of the Baht. Sterling and the USD have both dropped considerably whereas the Baht has only moderately strengthened. Having a weak currency over the past few years is seen as a major advantage and the UK was very happy to see Sterling drop and actively encouraged it. Currencies that have maintain their actual value or even strengthened have been at a disadvantage to currencies that have moved in the opposite direction and exports are a major consideration. Just follow the War of Words between the USA and China of the alledged controlled weakness of the Yuen. Vietnam devalued to assist exports and for no other economic reason. Regarding the opposition and ex Thai Finance Minister saying that a weak Baht would be bad for Thailand, well to coin a well known phrase, "He would say that wouldn't he?". Most opposition parties worldwide just disagrees on principle to any in power governments position and pray that they will not be successful. A moderately weaker Baht would be good for Thailand, helping exports and the inflow of finace and new businesses, providing it is controlled and not too fast. Many Farangs would also see the benefit by way of a salary increase. Good news all around.

Not good news all around, devaluation increases the costs of imports, and that is not good news, it will affect the general public in many ways by increased costings here and there, moreover, the middle classes indenting to take their holiday's abroad will not be impressed by it.

Nevertheless, notwithstanding the above, we farangs living here in retirement, or on short visits, will be more than happy if the baht devaluation takes place, so lets keep our fingers crosses.

[12DrinkMore]

Not good news all around, devaluation increases the costs of imports, and that is not good news, it will affect the general public in many ways by increased costings here and there, moreover, the middle classes indenting to take their holiday's abroad will not be impressed by it.

Nevertheless, notwithstanding the above, we farangs living here in retirement, or on short visits, will be more than happy if the baht devaluation takes place, so lets keep our fingers crosses.

That is one selfish post.

Essentially you would prefer the majority of Thais to suffer so that your personal lifestyle improves?

Edited March 28, 2012 by 12DrinkMore

[geezer553]

the baht has been very strong over the last 3 years in thailand,. the bankers have been greedy......this year will see the start of a recession start to hit thailand,. many hotels / condos being built. thats great but where are the guests....tourism has decreased by over 42% within the last 12 months.... banks where offering 68 baht to the £. when the recession hit the british pound......prices have continued to rise over the last couple of years...thailand is no longer the bargain destination to travel...

i would hope things improve,as i travel to thailand on a regular basis to see my thai partner.

[hawker9000]

low baht mean cheaper retirement for some

I'm not so sure. In the short run maybe, but retirees need to be concerned with the longer term, because once retired, and on a fixed-income or receiving a pension subject to someone ELSE's assessment of cost-of-living, inflation will become a much more significant concern than it was during your working years. The baht might fall against other currencies, but eventually goods & services priced in baht will probably inflate: whatever you gain in being able to buy cheaper baht, you will largely lose in having to spend more of them on energy, rent, and other necessities.

Now if the baht is, as some say, currently being propped up and at "artificial" levels against other currencies, that's perhaps a different story. (But isn't the preponderance of opinion that it's actually the other way around, and would actually be higher against other currencies now if not being manipulated?)

[Naam]

The true fact is that no government fully participating in the global economy has the ability to do more than nudge their currency's value up or down in the short term, and then only in the direction the market's willing to go anyway. Against a medium to long term trend no agency has any power, except by manipulating their credit markets, and even that depends on the government's credibility to repay - and has other macro consequences domestically.

Facts like these are hard for Thais to accept, and they just won't acknowledge publicly, they like to think their government has the ability to control not just currency, but commodity prices, and it's just a pipe dream as long as they want to participate in globalized markets, it's international trade as a whole, AKA "the market" that sets prices.

BINGO!

[Naam]

They talk as if they can control the "Float" of the Thai baht. I don't think so as there are many outside factors.

Thai Baht is a restricted currency, size Mickey Mouse compared to most other currencies. when you look at the size of the BoT's foreign reserves it becomes very clear that "they" have controlled and are able to control a float.

[farang000999]

Mr. Korn, also a Democrat MP, warned the government that lowering the value of the Thai currency would do more harm than good to the overall economy of the country.

There you have it folks! Now you know why the Baht has gone from those 60-70 Baht per GBP and those days when you got lots more dollars to the low it is now.

It has been the policy of the people in power to increase the value of the Baht so the powerful elite benefit e.g. they get more bang for THEIR money.

In fact, this article proves exchange rate policy has nothing to do with trying to help the tourist sector or those people/businesses that export!

All those threads about how Thailand is a strong economy and how the West has become weak are now proven to be rubbish. In short, the elite WANT a strong Baht FULL STOP.

YES PLEASE DEVALUE THE THAI BAHT TO HELP POOR PEOPLE. WHEN THEY SEE HOW MUCH MORE EXPENSIVE EVERYTHING IS IN THE STORE AND AT THE GAS PUMP THEY WILL BE VERY VERY HAPPY! A WEAK CURRENCY MEANS EVERYTHING COSTS MORE, THAT IS A VERY VERY IMPORTANT THING FOR POOR PEOPLE!

[alexmaniax]

Please , Please devalue the Baht then I can get back to a reasonable life style and be 'happy' pensioner again. At present it is way overvalued when you compare it with other countries and their financial status.

BS!

[alexmaniax]

Baht value is justified! The more influx of foreign money/investment into Thailand, what we could see the last 18 months happening, the Stronger the baht gets.

They should thank Helicopter Ben for providing QE1,QE2, a lot of that money found his way into Asia! More QE 3 coming???

Beter change your money NOW!!! I changed all my euros into SGD when I saw shit happening in europe 1 year ago.

Europe and US go down the drain, so their economies, Thai economy will improve even more! Wait and see! ( EXCEPT USA begin world war 3), then you're better of with gold/silver.

Have a nice day!

[GentlemanJim]

Not good news all around, devaluation increases the costs of imports, and that is not good news, it will affect the general public in many ways by increased costings here and there, moreover, the middle classes indenting to take their holiday's abroad will not be impressed by it. Nevertheless, notwithstanding the above, we farangs living here in retirement, or on short visits, will be more than happy if the baht devaluation takes place, so lets keep our fingers crosses.

That is one selfish post. Essentially you would prefer the majority of Thais to suffer so that your personal lifestyle improves?

That is one funny post!

Essentially, every Thai politician is happy to see the majority of Thais suffer so that their own personal lifestyle improves. In fact any Thai with foreign currency reserves would gladly see a devalued baht, and who has those reserves? ...the people with money. Its a tough place to be poor that's for sure but its a bit rich calling someone selfish because they would like to see their own situation improve.

[Thai at Heart]

Not good news all around, devaluation increases the costs of imports, and that is not good news, it will affect the general public in many ways by increased costings here and there, moreover, the middle classes indenting to take their holiday's abroad will not be impressed by it. Nevertheless, notwithstanding the above, we farangs living here in retirement, or on short visits, will be more than happy if the baht devaluation takes place, so lets keep our fingers crosses.

That is one selfish post. Essentially you would prefer the majority of Thais to suffer so that your personal lifestyle improves?

That is one funny post!

Essentially, every Thai politician is happy to see the majority of Thais suffer so that their own personal lifestyle improves. In fact any Thai with foreign currency reserves would gladly see a devalued baht, and who has those reserves? ...the people with money. Its a tough place to be poor that's for sure but its a bit rich calling someone selfish because they would like to see their own situation improve.

So obviously, Korn, having proved his time with Morgan Stanley is diversified.

There is very little that the Thai government can do to actively devalue the baht other then deliberately induce another flood bigger than last year so even more of the industrial export sector gets screwed up, than last.

[gand]

Not good news all around, devaluation increases the costs of imports, and that is not good news, it will affect the general public in many ways by increased costings here and there, moreover, the middle classes indenting to take their holiday's abroad will not be impressed by it. Nevertheless, notwithstanding the above, we farangs living here in retirement, or on short visits, will be more than happy if the baht devaluation takes place, so lets keep our fingers crosses.

That is one selfish post. Essentially you would prefer the majority of Thais to suffer so that your personal lifestyle improves?

That is one funny post!

Essentially, every Thai politician is happy to see the majority of Thais suffer so that their own personal lifestyle improves. In fact any Thai with foreign currency reserves would gladly see a devalued baht, and who has those reserves? ...the people with money. Its a tough place to be poor that's for sure but its a bit rich calling someone selfish because they would like to see their own situation improve.

So obviously, Korn, having proved his time with Morgan Stanley is diversified.

There is very little that the Thai government can do to actively devalue the baht other then deliberately induce another flood bigger than last year so even more of the industrial export sector gets screwed up, than last.

They can also over print currency to pay for all their govt programs, paying rioters, paying flood victims, paying for tablets. But I thought is was pegged to the same super secret basket of currencies as the Malaysian ringit, since they move in tandem and the baht stays at approximately 10 times the ringit. Is that not true?

[TAWP]

Mr. Korn, also a Democrat MP, warned the government that lowering the value of the Thai currency would do more harm than good to the overall economy of the country.

There you have it folks! Now you know why the Baht has gone from those 60-70 Baht per GBP and those days when you got lots more dollars to the low it is now.

It has been the policy of the people in power to increase the value of the Baht so the powerful elite benefit e.g. they get more bang for THEIR money.

In fact, this article proves exchange rate policy has nothing to do with trying to help the tourist sector or those people/businesses that export!

All those threads about how Thailand is a strong economy and how the West has become weak are now proven to be rubbish. In short, the elite WANT a strong Baht FULL STOP.

You are confused.

The rich holding foreign currency and larger exporters would love the currency to get a devaluation.

The middle-class would be absolutely destroyed by it.

To proclaim that the rich want a strong baht shows ignorance as to how the rich lives or holds their wealth.

[Thai at Heart]

Well, the other paper reports today that

Exports increased 1.2% Feb year on year after the flood slow down

Total Public Debt was 41% of GDP, (hmmm, quite a way to go to catch Greece at 100%+), and the rest of the developed world at 80% plus.

Which begs the question what financial pressure could there be to "weaken" the baht, and people still argue that Thailand is in a financially bad position. In fact they can keep on borrowing more as much as GDP rises year (4 to 6%)on year and never increase the total debt holding.

[billd766]

How much public money will be lost i.e. turned into debt when the Thai government will buy Thai rice at 30% above the world market price and then find that they cannot sell it?

Of course if they can't sell it they can always store t at an extra cost to the state untill it rots and cannot even be given away.

Meanwhile Vietnam, India and Indonesia will be rubbing their hands at the thought of all the extra export money they will earn.