BOT not worried by all-time high foreign currency debt

THE NATION

Thailand's foreign debt rose to a record high of US$119 billion or Bt3.6 trillion in March, but the Bank of Thailand insists the country's external exposure is balanced by asset holdings.

BANGKOK: -- The central bank's data revealed that the outstanding foreign-currency debt of all sectors, except its own, showed an increase from the previous month. It attributed the increase mainly to burgeoning Thai investment overseas as well as international trade

Songtham Pinto, director of the macroeconomics office, said yesterday that there is no reason to worry despite the increase. Most of the external debt is backed by assets, such as trade receivables or foreign-exchange hedging contracts, he said.

"Thanks to an increase in overseas investment, demand for currency hedging is on the rise. Expecting US dollar-denominated income, these investors sold dollars through forward contracts. As these contracts are offered by commercial banks, the banks need to plug associated risks by borrowing dollar-denominated loans. This increased the external debt.

"This is not an issue, as the forex risks are taken care of. There will be no risk, even the baht may weaken against dollar," he said.

Deposit-taking financial institutions produced the sharpest increase of $2.8 billion from the previous month to $26.5 billion, due to short-term borrowings to cover hedging demand from Thai businesses.

In March, foreign investors dumped short-term central bank bonds, pulling down the central bank's outstanding foreign currency-denominated debt by $300 million to $249 billion.

Demand for long-term government bonds, however, boosted the government's debt by $100 million to $12.2 billion.

Thailand, like other Asian nations, benefited from investor demand for long-term bonds, on anticipation that Asia's growth would be maintained on the back of the US economic recovery.

Foreign currency-denominated debt of other sectors climbed $1.8 billion to $72 billion, of which the non-depository corporations' portion went up by $200 million to $9 billion, due to loan demand.

The portion of non-financial businesses, individuals and non-profit organisations added $2.8 billion to $63 billion, largely due to the growing import account. In March, imports soared 21.5 per cent from the same month last year.

-- The Nation 2012-05-10

What did BOT say? hard to follow. I read it as "leave it to us, don't worry"

Essentially they are pointing out that it is not the gross position (amount of FX debt) that matters but rather (a) the net position (foreign assets less FX debt) and ( the FX mismatch (long or short) if any. The are comfortable as (a) the net position is not large - and may be trending towards a positive balance as Thais invest more overseas while ( most FX borrowing is either matched by FX assets or (if this is not the case) hedged.

Foreign debt is Farang problem.

Stupid enough to lend to Thai people.

Beware the arrogance of the big banks, and the governments that are in bed with them. The proof was played out all around the world a few years ago. To act as if debt is not a problem... is a problem.

There is nothing wrong with Thailand's debt level. It's managed, controlled, and serviced. The Thai economy is growning. Thailand's foreign debt is 26% of GDP. Compare this with:

USA 101%

UK 360%

Gernamy 142%

France 182%

Japan 42%

Ireland 1165% ... yes one-thousand, one-hundred and sixty-five percent

Australia 95%

I'd say Thailand is in pretty good shape.

Foreign debt is Farang problem.

Stupid enough to lend to Thai people.

Dumbest comment I've seen in ages.

There is nothing wrong with Thailand's debt level. It's managed, controlled, and serviced. The Thai economy is growning. Thailand's foreign debt is 26% of GDP. Compare this with:

USA 101%

UK 360%

Gernamy 142%

France 182%

Japan 42%

Ireland 1165% ... yes one-thousand, one-hundred and sixty-five percent

Australia 95%

I'd say Thailand is in pretty good shape.

agree with Thailand's shape, disagree with dumbest debt/gdp figures i've ever seen

Quote: "This is not an issue, as the forex risks are taken care of. There will be no risk, even [if] the baht may weaken against dollar," he said."

From what little I understand, it seems like the BOT has done a great job of managing Thailand's currency. Thailand's currency has remained strong for the last 5-7 years. The only part of this article that doesn't fit is the part about "the baht may weaken against the dollar". Since the dollar is falling like a stone, that means the baht will have to drop even faster. A conversion rate of 35 or 40 would sure take a little pressure off the budget, but it doesn't fit with the rest of what the author is saying.