Thai Government Should Not Mess With Foreign Exchange Policy

[webfact]

WATCHDOG

Government should not mess with foreign exchange policy

Nophakhun Limsamarnphun

BANGKOK: -- The government should allow market forces to dictate the value of the Thai baht rather than asking the Bank of Thailand to excessively intervene in the foreign exchange market to weaken the unit.

That's the statement from Dhanin Chearavanont, chairman of Charoen Pokphand, or CP Group, who argues that the baht has gained strength due to an inflow of foreign funds into Thailand.

This has resulted in several benefits for the Thai economy. For example, a stronger baht has helped slow the rise of domestic retail oil prices, and has made machinery imports cheaper for industries to increase their productivity.

Previously, Kittirat Na Ranong, the deputy premier and finance minister, told the Bank of Thailand to adopt a weak baht policy to aid the export sector's recovery.

However, BOT Governor Prasarn Trairatvorakul said the central bank's policy is to avoid intervening excessively in foreign exchange markets.

The baht was trading at 31.01 per dollar late last week, compared to the previous close of 30.98 per dollar.

Prasarn said the country should avoid using exchange rates as a policy tool in managing the macro-economy. He cited the 1997 "Tom Yum Koong" financial crisis as an example in which free flow of capital, high interest rates and fixed exchange rates were a formula for disaster.

Over the past several years, the central bank has used "inflation targetting" as a major policy tool in managing the macro-economy.

Dhanin, one of the country's most influential businessmen, shared the opinion that the current managed-float exchange rate regime, adopted following the 1997 financial crisis, should not be altered.

"If the baht had not strengthened, domestic oil prices could have topped Bt50 per litre by now, wreaking havoc on businesses and industries. If we allow the baht to weaken, and oil imports become much more expensive, businesses will be hit badly," he said.

In his opinion, there are both winners and losers on exchange rates. Proponents of baht weakness such as Kittirat argue that a weaker currency will help exporters boost their shipments to international markets due to increased price competitiveness.

However, critics say exporters must also adapt to a stronger currency to stay competitive. Otherwise, they will lose competitiveness in the long run due to the lack of competitive pressures.

As a major exporter of food and other products, Dhanin admitted that a stronger baht will hurt the group's short-term competitiveness in global markets, so he suggested that the government may consider helping specific export sectors which are directly hit by a stronger currency.

Dhanin is also an advocate of higher wages, especially the Pheu Thai Party's policy of a Bt300-per-day minimum wage, which took effect on April 1.

Dhanin believes that higher minimum wages will lead to more disposable income among the majority of workers and thus stronger growth in the domestic economy.

This will allow Thailand to reduce dependence on the export sector, which currently accounts for more than 60 per cent of the country's GDP.

Yet, it is also necessary to boost workers' productivity to compensate for higher production and business costs as wages have gone up by a hefty 40 per cent in one fell swoop.

-- The Nation 2012-04-07

[sparebox2]

Only Korn will gain. We all know that.

Same as the ThaiCom share scandle.

[Bengt]

50 THB per litre gasoline.....maybe not so much traffic jams

[Bengt]

The strong THB have lead to that forenginers avoid to buy properties like houses or condos.

1 Euro got about 50 THB some years ago, A GBP got about 70, A USD got about 36-39 THB...but now about 15-20% less for foreign money.

Edited April 7, 2012 by Bengt

[rakman]

Let's have a race to the bottom of all currencies, then everything will be free.. LOL.. yeah, right..

[drdoom6996]

They just screw the poor people that they claim to take care of. Look ad the Reds Leaders houses. They are certainly are not the poor and downtrodden. And the to bad part is, the poor love it.

[tragickingdom]

Democrat Party sponsor Charoen Pokhand is only thinking about it's own interest. CP might be mainly importing, most Thai businesses are exporting. So a cheaper baht makes sense. The tourist industry must love a cheaper baht too, especially now they have to compete with Burma for tourists. So lowering the exchange rate is not the same as messing around. Messing around is what CP does, when it buys off CAT directors, or when it destroys forests in order to let their shrimp business grow.

[fletchsmile]

Leave it to Bank of Thailand. They have some good people who know what they're doing

[billd766]

What would happen if the deputy premier and finance minister, loses his position in the next cabinet reshuffle due in May or June and the new finance minister wants to do things a different way?

It is like watching musical chairs seeing the PTP changing jobs every 3 of 4 months, all of them trying to stamp their mark and hang onto their jobs,

Whatever happened to "the best person for the job" thing announced by the Prime Minister.

I suppose in a way what they are doing is a good thing as none of them are there long enough to make any serious changes or to make any serious money.

[how241]

As if they really could control or influence the exchange rate.

[JohnAllan]

I suspect government interference in exchange rates has been the modus operandi for some years, resulting in the baht strengthening excessively, rather than weakening.

Regardless of foreign inflows - and that is questionable, with major exports such as tourism struggling - when political turmoil, government incompetence in managing crises, a variety of external factors, such as bird 'flu, and global financial crisis that hits exports from all countries, follow, one after the other, exchange rates should, feasibly, be negatively impacted.

When that doesn't happen, or is hardly noticeable, and FX rates vs major currencies are close to 1997 pre-crisis levels, it looks suspiciously like manipulation.

[belg]

oil oil oil ... thailand, start investing in solar / wind / water energy to be less dependent on the countries who earn fortunes to get the black dirt out of the ground

[12DrinkMore]

I suspect government interference in exchange rates has been the modus operandi for some years, resulting in the baht strengthening excessively, rather than weakening.

The Thai Baht has been managed very competently against a basket of other Asian currencies. In doing this the BoT has amassed a huge wad of Forex, as it has had to keep the THB from rising too strongly.

Regardless of foreign inflows - and that is questionable, with major exports such as tourism struggling - when political turmoil, government incompetence in managing crises, a variety of external factors, such as bird 'flu, and global financial crisis that hits exports from all countries, follow, one after the other, exchange rates should, feasibly, be negatively impacted.

When that doesn't happen, or is hardly noticeable, and FX rates vs major currencies are close to 1997 pre-crisis levels, it looks suspiciously like manipulation.

Maybe you hadn't noticed the basket case economies in the west? It is not that the THB has strengthened against them, it is the loss in value of the western currencies due to massive state and private indebtedness and flat-lining economies.

From the article above

Dhanin believes that higher minimum wages will lead to more disposable income among the majority of workers and thus stronger growth in the domestic economy.

This will allow Thailand to reduce dependence on the export sector, which currently accounts for more than 60 per cent of the country's GDP.

Absolutely. The man is talking total sense.

[oggie911]

but most thai dont like work 300 or whatever lazy b------ds the cambodians work better and longer hours bar girls are just looking for some rich dope they sell it away but still have it the next day to sell again sad but true even if you get the they still have for the next one

[personchester]

50 THB per litre gasoline.....maybe not so much traffic jams

Yes, no doubt, but it would increase motorbike traffic, and that would give more hassle to car drivers.

[chiang mai]

As if they really could control or influence the exchange rate.

Oddly they can! THB is a very small currency with limited appeal globally, it's not traded on the Forex markets in the same way that most globally currencies are. It would be quite easy for the BOT to move the exchange rate either way, by a significant amount, almost overnight and they have the foriegn currency reserves to do so.

[chiang mai]

I suspect government interference in exchange rates has been the modus operandi for some years, resulting in the baht strengthening excessively, rather than weakening.

Regardless of foreign inflows - and that is questionable, with major exports such as tourism struggling - when political turmoil, government incompetence in managing crises, a variety of external factors, such as bird 'flu, and global financial crisis that hits exports from all countries, follow, one after the other, exchange rates should, feasibly, be negatively impacted.

When that doesn't happen, or is hardly noticeable, and FX rates vs major currencies are close to 1997 pre-crisis levels, it looks suspiciously like manipulation.

I suspect government interference in exchange rates has been the modus operandi for some years, resulting in the baht strengthening excessively, rather than weakening.

Regardless of foreign inflows - and that is questionable, with major exports such as tourism struggling - when political turmoil, government incompetence in managing crises, a variety of external factors, such as bird 'flu, and global financial crisis that hits exports from all countries, follow, one after the other, exchange rates should, feasibly, be negatively impacted.

When that doesn't happen, or is hardly noticeable, and FX rates vs major currencies are close to 1997 pre-crisis levels, it looks suspiciously like manipulation.

It has not been the case that the Baht has strengthened but more that the other major currencies have weakened, the defacto strengthening of the Baht that resulted from all of that has been a problem for the BOT for some time since it makes Thai exports more expensive to overseas buyers - in recent years BOT has spent a lot of money preventing the Baht from strengthening.

Also, the pre-1997 levels you mention were false levels, the Baht was effectively pegged to USD at that time hence the value of THB then was not representative of the state of their economy. Finally, you mention tourism and the impact on it of a strong Baht, you will of course note that tourist numbers have not really fallen.

[personchester]

The strong THB have lead to that forenginers avoid to buy properties like houses or condos.

1 Euro got about 50 THB some years ago, A GBP got about 70, A USD got about 36-39 THB...but now about 15-20% less for foreign money.

It is not so much a strong THB, it is the devaluation of the western currencies due to their commercial and financial disasters which begun in 2008, as far as the GBP is concerned it went down to 30% and it will not increase for a while, since BoE is still doing billions via QE in order to provide cheap money for the UK economy.

For British pensioners the devaluation of the GBP v.THB, together with their frozen state pension is a double whamming

[Chopperboy]

Democrat Party sponsor Charoen Pokhand is only thinking about it's own interest. CP might be mainly importing, most Thai businesses are exporting. So a cheaper baht makes sense. The tourist industry must love a cheaper baht too, especially now they have to compete with Burma for tourists. So lowering the exchange rate is not the same as messing around. Messing around is what CP does, when it buys off CAT directors, or when it destroys forests in order to let their shrimp business grow.

Or tells the press that 300B per day is still too low and should be nearer 500B! - then when 300B comes in sacks staff and reemploys them on a casual lower daily rate. Total Hypocrites..

Edited April 9, 2012 by Chopperboy