Strong Baht Offers A Chance For An Economic Shakeup

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THAI TALK
Strong baht offers a chance for an economic shakeup
Suthichai Yoon
The Nation


Central-bank governor Prasarn Trairatvorakul

BANGKOK: -- The baht may have strengthened a bit too much, too soon, but both the Bank of Thailand and the Finance Ministry seem to have taken it in stride. This, to all intents and purposes, isn't anything near a "crisis". In fact, it may provide a rare opportunity for a major restructuring of the Thai economy.

Central-bank governor Prasarn Trairatvorakul says the rapid appreciation of the baht over the past few weeks underscores improved sentiment in the Thai economy in comparison to others in East and Southeast Asia.

Finance Minister Kittirat na Ranong, offering assurances that the currency won't hit Bt27 to the US dollar, affirmed that no capital-control measures will be imposed - a move that could well make things worse.

A number of economists have noted that the central bank's clear message is that the private sector will have to learn how to adjust to the exchange-rate fluctuations, and Thai exporters will have to take on the burden of resorting to hedging contracts.

Barclays Capital analysts have expressed confidence that the Thai economic fundamentals are strong enough to shoulder the burden of the strengthening currency. The baht's appreciation of 4.5 per cent against the dollar isn't considered significant.

"The baht's appreciation of more than 20 per cent against the yen over the past six months has been a strong positive, given that imports from Japan account for 7 per cent of gross domestic product. Moreover, as an important part of the Japanese automotive sector's supply chain, lower import prices support corporate profitability and make re-exporting more competitive," the Barclays Capital report says.

But exporters are complaining bitterly, and calls for the central bank to intervene before "disaster" strikes have been heard from various quarters. In fact, this is a traditional "call for action" from the country's exporters every time the baht goes north, as if only a weak baht can keep the Thai economy going.

Politicians voicing similar concerns on behalf of businessmen tend to look at the short-term effects of almost every phenomenon. Long-term vision and planning aren't their forte, and because of that, the public debate on the issue tends to be one-sided, reflecting only exporters' worries rather than seizing the opportunity to embark on the long-overdue need for structural adjustment. Critics say Thailand should switch from its long-entrenched dependence on exports to an economy that can shift to a more robust domestic market.

There are certainly losers and winners when the baht gets stronger. A strengthening baht no doubt hurts exporters, but investors and importers stand to gain. It's well known that those who stand to gain when the baht becomes stronger do not usually shout about it in public. When all is said and done, do exporters' losses exceed importers' gains? Nobody can say for sure, but the country would stand to gain in the longer term if the government is capable of convincing the public to take advantage of what appears to be a "big problem".

A stressful time could be transformed into a major turning point. A stronger baht should convince the public and private sectors alike that a major, much-needed structural adjustment in the Thai economy can now be undertaken.

The cost of central-bank intervention to keep the baht weak in order to prop up exports is outweighed by the investment in upgrading machinery and production facilities brought by a stronger baht.

A new long-term vision may be necessary if Thailand is to undergo the major transformation from an export-dependent country to one that drives growth through technology and innovation. An overhaul of the country's infrastructure and a major push for private-sector investment while the Thai currency strengthens would be timely and offer long-lasting and sustainable opportunities.

But such a major and crucial shift can come about only with strong political will and vision at the top, which unfortunately are sorely lacking. Hence the confusing signals we receive as golden opportunities slip by.


-- The Nation 2013-03-28

[MrWorldwide]

Interesting that not *one* of the rants I've read here re the baht mentioned the importance of the THB-JPY relationship - not one - even if the 'make exports more competitive' line seems like classic spin doctor material. It may just be that one or two of the people running the show in Thailand actually did something at Harvard other than lie on the lawn dreaming of fat Wall St bonuses. Or posting page-long rants on internet forums ....

[schmoove]

A new long-term vision may be necessary if Thailand is to undergo the major transformation from an export-dependent country to one that drives growth through technology and innovation.

mmmmm

To say nothing of a major earner, tourism.

lots of aussies still coming not many europeans.

[davejones]

A new long-term vision may be necessary if Thailand is to undergo the major transformation from an export-dependent country to one that drives growth through technology and innovation.

mmmmm

To say nothing of a major earner, tourism.

lots of aussies still coming not many europeans.

Millions of Europeans come to Thailand every year. In fact, more Europeans come here than Australians. Just under 1 million from Australia in 2012. Over 2 million from just UK, Germany and France.1.3 million from Russia, which is also in Europe (and Asia).

I think you got things back to front. Did you mean lots of Europeans coming but not many Aussies?

[HUAHIN62]

Tourism is only 8% of GDP.

With the depreciation of the Yen against most currencies, the Baht strenght isn't such a big problem. The vehicles exported from Thailand earn US$ which the local company puts into THB or keep in US$. Them profits are send back to Japan in Yen they still make more than last year in Yen terms.

The last sentence of the article is pure tripe. The B 2,2 trillion is aimed at creating a transport and logistical hub in Thailand, through improving the countries infrastructure. If they can create this hub it will realign the countries economy and it will become less dependent on exports. So the government is doing precisely what the writer is asking but he/she conclude the article with "But such a major and crucial shift can come about only with strong political will and vision at the top, which unfortunately are sorely lacking." The problem is most people believe what they read.

[Suradit69]

A new long-term vision may be necessary if Thailand is to undergo the major transformation from an export-dependent country to one that drives growth through technology and innovation.

mmmmm

To say nothing of a major earner, tourism.

lots of aussies still coming not many europeans.

"from an export-dependent country "

Have seen several analysts on CNBC recently recommending investment in South East Asia, mentioning Thailand specifically, and at least two were of the opinion that they saw economic growth being domestically driven, although there was a general thesis that most of Asia was, and would be, dependent on the China influence.

There was a time when the rise and fall of the baht did seem to parallel what was happening to the Japanese currency and economy, but I think that's a train that's pulling out of the station. The Japanese, like some others, are trying to print their way out of the doldrums and their debt situation makes Europe appear almost viable.

The Bank of Japan's new governor,

Haruhiko Kuroda, has warned that Japan's debt levels are unsustainable.

His comments come as Japan's new government has called for aggressive

stimulus measures to help revive the country's sluggish economy.

Earlier this year, it approved a 10.3tn yen ($116bn; £72bn) stimulus

package.

There have been fears that such moves will further increase Japan's public

debt, which is already the highest among industrialised countries.

And given China's historical animosity to Japan, I doubt there'll be many tears shed as the Rising Sun continues to sink.

http://video.cnbc.com/gallery/?play=1&video=3000157410

Edited March 28, 2013 by Suradit69

[carib102]

So, the strength of the baht supports the current call for a 2.2 trillion loan to improve infrastructure. Any more questions regarding why the baht is strengthening? In truth this is not really the reason, the current government is just taking advantage of the situation put in place by Western central banks (and now exacerbated by Japan).

The SET is up 300% since 2009...bubble?

"Finance Minister Kittirat na Ranong, offering assurances that the currency won't hit Bt27 to the US dollar, affirmed that no capital-control measures will be imposed" If there will be no measures imposed then how can he say that the baht won't hit Bt27 to the USD? Does he have a crystal ball? Projecting future currency rates is difficult in the short term and dangerous in the long term.

Thailand is not immune to the effects of all the currency printing going on in the West. In fact, I would say that it is just this printing of money that has caused the appreciation in the equity markets and the vast amounts of foreign investment in Thailand. Interesting that the rise in the baht and SET correspond with the onset of monetary easing in the U.S. and U.K. Coincidence?

Now ask yourself what happens to all the foreign investment in Thailand once the QE presses slow down. Possibly replaced with the Yen QE? If so, it will only serve to further inflate a bubble already caused by Western governments.

Keep in mind too that assets and markets appreciate slowly, but depreciate at a vastly accelerated rate.

[lungmi]

It's only one side of the bahtcoin. The other is Greece.

Edited March 28, 2013 by lungmi

[fletchsmile]

Interesting that not *one* of the rants I've read here re the baht mentioned the importance of the THB-JPY relationship - not one - even if the 'make exports more competitive' line seems like classic spin doctor material. It may just be that one or two of the people running the show in Thailand actually did something at Harvard other than lie on the lawn dreaming of fat Wall St bonuses. Or posting page-long rants on internet forums ....

My guess would be that if someone took a trip down soi Thaniya there'd be a few more rants there about the exchange rate. The old "rule of 4" now being 20% more expensive in JPY terms than it used to be

[IsaanUSA]

There are certainly losers and winners when the baht gets stronger. A strengthening baht no doubt hurts exporters, but investors and importers
stand to gain. It's well known that those who stand to gain when the baht becomes stronger do not usually shout about it in public. When all is said and done, do exporters' losses exceed importers' gains? Nobody can say for sure, but the country would stand to gain in the longer term if the government is capable of convincing the public to take advantage of what appears to be a "big problem".

This was my favorite part. I would love to hear some stories from happy importers. Their margins must be great, and you know they are not lowering their prices in baht. Lots of people are making money, lets just hope they use it wisely.