Thailand to Avoid Currency Fight as Shadow of 1997 Crisis Looms

By Daniel Ten Kate & Yumi Teso

BANGKOK: -- Thailand’s Finance Minister Kittiratt Na-Ranong said the central bank should avoid fighting market forces to stem currency gains, heeding a lesson from the 1997 Asian financial crisis.

“The shadow of 1997 is there,” Kittiratt said in an interview in Bangkok. “I will never encourage Bank of Thailand to go and trade against the market-determined rate unless it’s only part of the daily stability, the weekly stability.”

The baht fell from a 17-month high this week amid speculation the central bank will intervene to halt gains. December export growth missed analysts’ estimates, prompting concern that the currency’s appreciation will pare shipments that account for about two-thirds of the economy.

Thailand is among emerging market nations struggling to handle increased inflows as monetary easing in the U.S., Japan and other developed economies spurs demand for higher-yielding assets. [more...]

Full story: http://www.bloomberg...isis-looms.html

-- Bloomberg 2013-01-25

So the Thai Baht will now be allowed to float ?

Or there will still be 'smoothing' by the BoT, and the currency will remain suspiciously-fixed, for much of the time ?

that was a totally different situation than today

Well IMO a strong currency is a wonderful problem to have. Enjoy lower imported energy, technology and material costs. Invest in improved infrastructure and see a general drop in domestic prices and wage pressures. Weaken the currency only to see the export gains evaporate in high input costs and increasing domestic inflation. Thailand is on track for a very sound economy if Kittiratt is successful resisting populist political pressure to devalue the currency.

Comparing 1997 to now is absolutely poles apart.

Well IMO a strong currency is a wonderful problem to have. Enjoy lower imported energy, technology and material costs. Invest in improved infrastructure and see a general drop in domestic prices and wage pressures. Weaken the currency only to see the export gains evaporate in high input costs and increasing domestic inflation. Thailand is on track for a very sound economy if Kittiratt is successful resisting populist political pressure to devalue the currency.

Ask Switzerland how wonderful it is to have a strong currency. Many parts of their economy are struggling because of the real strong value of the Swiss Franc against the Euro.

And how Thailand should sell all the rice?

Edited January 25, 201313 yr by hanuman2543

Thailand is headed for a 1/2 on the dice, otherwise known as a crap out.

Comparing 1997 to now is absolutely poles apart.

It is actually eerily similar.

2. An Anatomy of the Thai Financial Crisis

Since early 1990s, Thai economy had attracted massive volumes of capital inflow from aboard due to its accommodating economic policies, goal, healthy-looking conditions, and some other outside factors such as the stagflation of Japanese economy and the recession in European countries during 1990s. After a long period of strict financial regulations that limited credit expansion of commercial banks, starting from the beginning of 1990s, the Thai government had decided to accommodate a policy of financial market deregulation and capital account liberalization. Moreover, with an exchange rate fixed to a basket of world dominant currencies especially US dollars, the Thais had enjoyed a long period of nominal exchange rate stability as the baht had fluctuated very narrowly between 24.91-25.59 baht per dollar.

Well IMO a strong currency is a wonderful problem to have. Enjoy lower imported energy, technology and material costs. Invest in improved infrastructure and see a general drop in domestic prices and wage pressures. Weaken the currency only to see the export gains evaporate in high input costs and increasing domestic inflation. Thailand is on track for a very sound economy if Kittiratt is successful resisting populist political pressure to devalue the currency.

Unfortunately the above is a pipe dream. Only a few of the big players will enjoy these gains while the general population will not see prices come down on anything from abroad.

how reliant is thailand on foreign spending? It may hurt the property (condo) market and tourism, two big economies

The comparison between the 1997 crisis and the Baht rise are today is completely ridiculous. The problem in 1997 was that the currency was completely overvalued and everything was done to remain the peck to the dollar, in the process gambling away all of Thailand's currency reserves. Gambling against the market today in order to get the rate down would mean more foreign currency pouring in.

On top of that recent history have shown us that bourses and currency will shed 10-20% as soon as rumors enter the market place. Imagine when rumors become real. So there is no need to fight the market after all mathematically seen the chances that things occur become greater everyday.

I must be the only selfish farang in Thailand I would to see the baht where it was 72 to £ when i came to Thailand and transfered all my cash here.

Comparing 1997 to now is absolutely poles apart.

It is actually eerily similar.

2. An Anatomy of the Thai Financial Crisis

Since early 1990s, Thai economy had attracted massive volumes of capital inflow from aboard due to its accommodating economic policies, goal, healthy-looking conditions, and some other outside factors such as the stagflation of Japanese economy and the recession in European countries during 1990s. After a long period of strict financial regulations that limited credit expansion of commercial banks, starting from the beginning of 1990s, the Thai government had decided to accommodate a policy of financial market deregulation and capital account liberalization. Moreover, with an exchange rate fixed to a basket of world dominant currencies especially US dollars, the Thais had enjoyed a long period of nominal exchange rate stability as the baht had fluctuated very narrowly between 24.91-25.59 baht per dollar.

They had a free capital account and a fixed exchange rate, and were borrowing short term overseas money to fund long term domestic construction projects.

The difference, is that the currency IS being allowed to fluctuate to absorb the difference. You can't have a free capital account and fix the exchange rate without creating a massive divergence in capital flows and interest rates. Thailand can quite easily neutralise this capital inflow by reducing interest rates. They have been storing up forex for years here, trying to stop the baht getting too strong, to the point that Thailand has more forex on hand than either the USA or the UK for example. For those who have been saying that the Baht has been artifically strong, it has actually been artificially weak. If they hadn't been hoarding USD at buggar all interest, the baht would be even stronger than it is now.

http://en.wikipedia....change_reserves

What can anyone say? The values post 1997 were very low because of a massive forex crisis, but to expect them to stay the same when the EU, US, Japan and UK have been printing money hand over fist for 5 years,whilst the Thai economy has been running along at 4 to 7% growth since 1999, is dreaming.

Edited January 25, 201313 yr by Thai at Heart

Well IMO a strong currency is a wonderful problem to have. Enjoy lower imported energy, technology and material costs. Invest in improved infrastructure and see a general drop in domestic prices and wage pressures. Weaken the currency only to see the export gains evaporate in high input costs and increasing domestic inflation. Thailand is on track for a very sound economy if Kittiratt is successful resisting populist political pressure to devalue the currency.

A strong currency is only one part of the equation, and not the best part at that. Consider the rice situation, and that Bangkok is overbuilt with a low occupancy ratio in many condo's. Also, neighboring countries are opening up to the tourism that use to flock here. Then there's politics and those at the helm... I say, don't over leverage yourself.

Edited January 25, 201313 yr by Osiris

I must be the only selfish farang in Thailand I would to see the baht where it was 72 to £ when i came to Thailand and transfered all my cash here.

Me too but I don't think it will happen in my lifetime.

I must be the only selfish farang in Thailand I would to see the baht where it was 72 to £ when i came to Thailand and transfered all my cash here.

If you transfered all your cash here and you are not getting more sent over, why would you want the baht to go down?

If you had transfered 100,000 GBP then at 72, you would have 7,200,000 baht in the your Thai bank.

Now you can transfer 100,000 GBP back to the UK at 47, costing you 4,700,000 baht.

You have made yourself 2,500,000 baht profit. !

Edited January 25, 201313 yr by Windy

Well IMO a strong currency is a wonderful problem to have. Enjoy lower imported energy, technology and material costs. Invest in improved infrastructure and see a general drop in domestic prices and wage pressures. Weaken the currency only to see the export gains evaporate in high input costs and increasing domestic inflation. Thailand is on track for a very sound economy if Kittiratt is successful resisting populist political pressure to devalue the currency.

You ignore a few facts......they increased the minimum salary by 50 % and that together with a stronger currency makes products from Thailand just much more expensive. A lot products are no hi-tech, they are labor intensive.

Or if you sell rice, chicken, shrimps, rubber etc etc you can't simply sell it more expensive.

I must be the only selfish farang in Thailand I would to see the baht where it was 72 to £ when i came to Thailand and transfered all my cash here.

From a personal point of view that would be good for me as well as I'm probably going to need to send some money over soon. I'm not sure if there would be any downside for me as regards the economy as a whole.

I must be the only selfish farang in Thailand I would to see the baht where it was 72 to £ when i came to Thailand and transfered all my cash here.

If you transfered all your cash here and you are not getting more sent over, why would you want the baht to go down?

If you had transfered 100,000 GBP then at 72, you would have 7,200,000 baht in the your Thai bank.

Now you can transfer 100,000 GBP back to the UK at 47, costing you 4,700,000 baht.

You have made yourself 2,500,000 baht profit. !

I had 50.000 Euro when 1 Euro was over 50 Baht and I did not transfer it

Now it is 40

Well IMO a strong currency is a wonderful problem to have. Enjoy lower imported energy, technology and material costs. Invest in improved infrastructure and see a general drop in domestic prices and wage pressures. Weaken the currency only to see the export gains evaporate in high input costs and increasing domestic inflation. Thailand is on track for a very sound economy if Kittiratt is successful resisting populist political pressure to devalue the currency.

A strong baht is no good for exports or tourism both major sources of income for the country.

I must be the only selfish farang in Thailand I would to see the baht where it was 72 to £ when i came to Thailand and transfered all my cash here.

No you aren't because I thinking the same while reading the story and responses! All these replies about the economy but bet your bottom baht that there isn't one person who isn't thinking the same. If today turns out to be like 1997, unless these guys are billionaires they would be like you and me bring more money over to convert and buy! The honest truth is I can't wait!

Thailand has a few smart people at the fiscal helm but being dictated to by a populist government overriding intelligent decisions simply puts us on a roller coaster where the brakes have no affect in the momentum gained or actually controlling the stopping.

I must be the only selfish farang in Thailand I would to see the baht where it was 72 to £ when i came to Thailand and transfered all my cash here.

I am selfish just as well...I never changed more than necessary into thb

The Baht is on its´s way down. They build new Houses/Condoes all over Thailand. It´s called a bubble probably close to 1997 crisis.

Trafic is terrible, how to solve the problem: Give new car owner 100.000 baht to a new.

I assume this was just a bit of a diversion from the cries of the exporters. I find that goods I used to be asked about supplying to the UK are now pretty much instantly dismissed on price.

Well IMO a strong currency is a wonderful problem to have. Enjoy lower imported energy, technology and material costs. Invest in improved infrastructure and see a general drop in domestic prices and wage pressures. Weaken the currency only to see the export gains evaporate in high input costs and increasing domestic inflation. Thailand is on track for a very sound economy if Kittiratt is successful resisting populist political pressure to devalue the currency.

Stronger currency has seriously hurt tourism, grain sales, two of the biggest parts of the Thai economy. Even short term weaker currency spurs exports.

Comparing 1997 to now is absolutely poles apart.

The 1997 problem was caused my overspending, corruption and miss-management of funds by the private sector. The present problem is caused by overspending, corruption and miss-management by the government. You are correct they are different poles apart.

baht is on its way down? i remember people in the uk saying that about sterling in the late 90s. the economy just kept getting stronger

condos may be unoccupied but that has no relevance to the strength of the market imo but u cd argue the other way

Edited January 25, 201313 yr by fish fingers

I must be the only selfish farang in Thailand I would to see the baht where it was 72 to £ when i came to Thailand and transfered all my cash here.

Me too but I don't think it will happen in my lifetime.

Yeah thos were the days, but can't see that happening anytime soon again.

Well IMO a strong currency is a wonderful problem to have. Enjoy lower imported energy, technology and material costs. Invest in improved infrastructure and see a general drop in domestic prices and wage pressures. Weaken the currency only to see the export gains evaporate in high input costs and increasing domestic inflation. Thailand is on track for a very sound economy if Kittiratt is successful resisting populist political pressure to devalue the currency.

Not much point when you tax imports to oblivion!