Baht Moving Beyond Fundamentals: Bank Of Thailand

[chiang mai]

When Gambles quotes 60 per cent he also refers to that being in a few years hence he's builing in a series of assumptions that are not a reality today. The reality today is that the current two trill. borrowing program will amount to 45% of GDP.

Even you will agree that there is a massive difference between borrowings/lending rules applicable to retail/investment banks and to central banks, the former, the architects of fractional lending, are laregly responsible for the real estate problems that you cited earlier. But Cnetral Banks, the likes of the BOT, do not get involved in real estate lending in the same way, certainly BOT borrows more than the current value of it's deposits but that can hardly be termed fractional reserve banking!

First do you really believe any figures released by the Thai government? And, if I'm wrong, why did Thailand have to borrow so much money from the IMF to stay afloat in '97?

The BOT is the "federal reserve" bank of Thailand. I concede that "Banks in Thailand" engage in fractional reserve banking which is where the real estate bubble is financed, but it would be up to the BOT to bail them out if they crashed. So in my mind, the BOT is up to its eyeballs in fractional banking, and the Thai government including the BOT cannot afford to allow large money withdrawals from Thailand. There's your signal. You know they don't allow it, but do you know why? Does the "why" make any sense to anyone?

It would be a mistake to confuse the events and the environment of 1997 with that of today, the two are not even closely similar. It would also be a mistake to assume that what happened in the the US banking system six years ago will automatically happen here. And in answer to your question, yes, I do believe the numbers produced by the BOT and given a choice between those numbers and Mr Gambles numbers, the latter doesn't get a look in.

Thai banks have 40% of their loans as real estate loans. I believe there is a real estate bubble and this overbuilding is going to bite the builders and the banks. You don't have to agree of course. I said let's talk about it again in 5 years.

Yes, the one single thing that contributed most to bringing the Thai economy down in 97 was a real estate bubble bursting. It popped the banks and Thailand had to borrow billions from the IMF to bail them out. Some of those loans are still on the books and some of the buildings are either still empty or have been torn down.

So no, I don't trust any Thai numbers.

My BIGGEST problem with Thailand is corruption. I don't believe a thing they say. My second biggest is what I see with my own two eyes.

OK we have to end our little chat there because we've just gone cyclical again, as we have discussed previously the 1997 crash resulted from the currency peg and not from real estate (think cause and effect) but if it suits you to think in different terms, go for it, other readers may however want to do their own research on this point.

[oz93666]

Is there a problem? Is a strong baht a problem? Of course not, if you want to weaken the the Baht ,you just print more Baht , turn paper into money, and buy gold on the international market until the Baht slides to where you want it, this is basic economics. Find a safe place for the gold , do'nt give it to US to look after !!!

[Berkshire]

I don't see a writer's credit for that Nation article. What's the point of it? So what if there are a percentage of lower economic class, opinionated foreigners here. Do people on TV really think those type of people represent even 30% to 40% of foreigners here? Probably more like 15%-20%. So what? What percentage of Thais here are clueless about the stock market, have conspiratorial ideas and are unhappy with their financial predicament? (oh and um..drink alcohol and frequent prostitutes).Think its only 15%-20%???

In what way does that article even qualify as journalism?

Even those 'poorest and stupidest' foreigners are spreading more money around

their immediate communities than 50%-75% of the Thais. Constantly parading the worst foreigners

here in the media only develops a stereotype which we all have to eventually contend with.

Crap journalism, spewing nonsense to meet a deadline.

Classic ThaiVisa!

Something flew over your head, 'cocopops'.

Surely you understand that the Not the Nation article was a satire. And satires generally originate from underlying truths. The article wasn't making fun of poor pensioners. It was making fun of stupid expats. Your name wouldn't be Gerald Kellermen, would it? That would make sense.

[yoshiwara]

When Gambles quotes 60 per cent he also refers to that being in a few years hence he's builing in a series of assumptions that are not a reality today. The reality today is that the current two trill. borrowing program will amount to 45% of GDP.

Even you will agree that there is a massive difference between borrowings/lending rules applicable to retail/investment banks and to central banks, the former, the architects of fractional lending, are laregly responsible for the real estate problems that you cited earlier. But Cnetral Banks, the likes of the BOT, do not get involved in real estate lending in the same way, certainly BOT borrows more than the current value of it's deposits but that can hardly be termed fractional reserve banking!

First do you really believe any figures released by the Thai government? And, if I'm wrong, why did Thailand have to borrow so much money from the IMF to stay afloat in '97?

The BOT is the "federal reserve" bank of Thailand. I concede that "Banks in Thailand" engage in fractional reserve banking which is where the real estate bubble is financed, but it would be up to the BOT to bail them out if they crashed. So in my mind, the BOT is up to its eyeballs in fractional banking, and the Thai government including the BOT cannot afford to allow large money withdrawals from Thailand. There's your signal. You know they don't allow it, but do you know why? Does the "why" make any sense to anyone?

It would be a mistake to confuse the events and the environment of 1997 with that of today, the two are not even closely similar. It would also be a mistake to assume that what happened in the the US banking system six years ago will automatically happen here. And in answer to your question, yes, I do believe the numbers produced by the BOT and given a choice between those numbers and Mr Gambles numbers, the latter doesn't get a look in.

My BIGGEST problem with Thailand is corruption. I don't believe a thing they say. My second biggest is what I see with my own two eyes.

But those who don't believe with your eyes have made more money.

[Pui]

It is both good and bad at the same time. Bad for people that want to come here on a cheep holiday, but good for Thailand, it means that they are starting to build an economy that does not fully rely on tourism for income. Thailand is victim to tourism in so many ways, which is evident when you see the lack of Thai culture in touristy areas. I would be nice for Thailand to have tourism based on its culture and a nice place to stay (and affordable) rather than tourists just coming here and doing what they like because they can pay for it.

The same naive nonsense. Thailand's economy doesn't rely on tourism and certainly not expats spending. Where does this idea come from?

QUOTE

He said that the agenda was mainly about the export target, not about the exchange rates.

GDP

Tourism = about 7% GDP

i.e. 25 million tourists, the expat and his stamp collection (i did like that LOL)

Exports = About 70% GDP

Please get some perspective. With exports about 10 times more than tourism, Thailand is not reliant on tourism or expat spending for that matter. The agenda is EXPORTS!!! that means trying to be competitive with other countries in the region with high manufacturing output.

As for "Thai culture being compromised" in tourist venues. I'll leave that for another thread.

[TroyT]

Smoke and Mirrors ... time for a light-hearted [?] aside.

For me, it is far better to grasp the Universe as it really is than to persist in delusion, however satisfying and reassuring.

Carl Sagan

A delusion is something that people believe in despite a total lack of evidence.

Richard Dawkins

No man is happy without a delusion of some kind. Delusions are as necessary to our happiness as realities.

Christian Nestell Bovee

When all else fails there's always delusion.

Conan O'Brien

Getting rid of a delusion makes us wiser than getting hold of a truth.

Ludwig Borne

Money, again, has often been a cause of the delusion of the multitudes. Sober
nations have all at once become desperate gamblers, and risked almost
their existence upon the turn of a piece of paper.

Charles Mackay

[koiwaolao]

Somebody mentioned that a strong baht at least makes imported goods cheaper - sadly this is not so! Just one example: In 2009 (then) Carrefour sold a 5 l casket of South African wine for some 850 baht. At the time 1 SAR = 4,50 baht. Nowadays the same wine costs not only 965 baht but 1 SAR = 3,10 baht today! This represents an increase of some 60 - 70 %! Surely this goes for many other imported goods ( mainly brought here " because farang likes") and it illustrates the enormous profiteering practised by Thai business. No wonder the country gets richer and richer by the day.

[jimbeam1]

The present strength of the Thai Baht is really bad for inward investors as your Pound/Euro/Dollar now gets around 1/3 less Baht than it did at the high point 5 years ago (68 Baht to the pound then 44 Baht now)

I presently only bring in the money I need for living expenses and I am waiting for a change back to better rates so that I can continue to invest in the Kingdom.

I love Thailand and her people with a passion but as I am an elderly man, and not a millionaire, I need to make sure that I get the maximum "bang for the buck" to ensure that my retirement will continue to be comfortable

I hope that this situation is temporary as the hard working people and companies in Thailand will obviously struggle to export at these rates and it will therefore hurt employment.

House prices, and rental charges in Thai Baht will now need to drop to attract customers in the international market with a consequent fall in present income for a lot of people who have already invested in Thailand

Other than cheaper imports I cannot see any positives in the present exchange rates

I presently only bring in the money I need for living expenses and I am

waiting for a change back to better rates so that I can continue to

invest in the Kingdom.. Exactly what I have been doing for the past 4 years. Still waiting.

jb1

[Naam]

Somebody mentioned that a strong baht at least makes imported goods cheaper - sadly this is not so! Just one example: In 2009 (then) Carrefour sold a 5 l casket of South African wine for some 850 baht. At the time 1 SAR = 4,50 baht. Nowadays the same wine costs not only 965 baht but 1 SAR = 3,10 baht today! This represents an increase of some 60 - 70 %! Surely this goes for many other imported goods ( mainly brought here " because farang likes") and it illustrates the enormous profiteering practised by Thai business. No wonder the country gets richer and richer by the day.

it does not apply only to items "Farang likes" but to items across the board. check for example car prices manufactured in Thailand but with a substantial share of imported parts. i refer not only to European but also to Japanese brands. THB appreciated which should make imports much cheaper. but do you see any price reduction?

[samran]

When Gambles quotes 60 per cent he also refers to that being in a few years hence he's builing in a series of assumptions that are not a reality today. The reality today is that the current two trill. borrowing program will amount to 45% of GDP.

Even you will agree that there is a massive difference between borrowings/lending rules applicable to retail/investment banks and to central banks, the former, the architects of fractional lending, are laregly responsible for the real estate problems that you cited earlier. But Cnetral Banks, the likes of the BOT, do not get involved in real estate lending in the same way, certainly BOT borrows more than the current value of it's deposits but that can hardly be termed fractional reserve banking!

First do you really believe any figures released by the Thai government? And, if I'm wrong, why did Thailand have to borrow so much money from the IMF to stay afloat in '97?

The BOT is the "federal reserve" bank of Thailand. I concede that "Banks in Thailand" engage in fractional reserve banking which is where the real estate bubble is financed, but it would be up to the BOT to bail them out if they crashed. So in my mind, the BOT is up to its eyeballs in fractional banking, and the Thai government including the BOT cannot afford to allow large money withdrawals from Thailand. There's your signal. You know they don't allow it, but do you know why? Does the "why" make any sense to anyone?

It would be a mistake to confuse the events and the environment of 1997 with that of today, the two are not even closely similar. It would also be a mistake to assume that what happened in the the US banking system six years ago will automatically happen here. And in answer to your question, yes, I do believe the numbers produced by the BOT and given a choice between those numbers and Mr Gambles numbers, the latter doesn't get a look in.

Thai banks have 40% of their loans as real estate loans. I believe there is a real estate bubble and this overbuilding is going to bite the builders and the banks. You don't have to agree of course. I said let's talk about it again in 5 years.

Yes, the one single thing that contributed most to bringing the Thai economy down in 97 was a real estate bubble bursting. It popped the banks and Thailand had to borrow billions from the IMF to bail them out. Some of those loans are still on the books and some of the buildings are either still empty or have been torn down.

So no, I don't trust any Thai numbers.

My BIGGEST problem with Thailand is corruption. I don't believe a thing they say. My second biggest is what I see with my own two eyes.

er, um, no.

the main reason for the 97 crash was the pegged currency and massive interest rate differential. But I shall stop speaking sense now and let you return to your warped sense of history. That is much more entertaining.

[Naam]

samran, on 21 Apr 2013 - 17:07, said:

er, um, no.

the main reason for the 97 crash was the pegged currency and massive
interest rate differential. But I shall stop speaking sense now and let
you return to your warped sense of history. That is much more
entertaining.

i never understood why people spoil with boring facts quite interesting,

entertaining and amusing stories. if they don't want to play fair they should

refrain from participating and rather concentrate on getting a life.

[mccw]

As someone pointed out above, the problem is more that the major currencies such as USD, EUR, JPY, GBP are all weakening, due to the economic issues they are facing, and policies to deal with it. They are deliberately maintaining low interest rates, QE, encouraging weak currencies and so on.

A traditional measure would be for Thailand to cut interest rates to weaken its currency. Unfortunately this risks increasing inflation. Other govt factors have already stoked the inflation fire.

So the government are stuck with the lesser of two evils.

Also to be remembered that when the major countries and currencies are actively manipulating their markets and currencies, Thailand simply doesn't have the firepower to move things in the opposite way. USD, EUR, GBP etc have all been weakening, Thailand can't fight these easily with the resources it has.

Fletch

Fletch and Naam seem to be the only ones who understand the underlying dynamic here. The world is awash with cheap money and that cheap money(Dollars, Euros and Yen) always finds its way to the path with least resistance and greatest reward, and countries like Thailand, Austrailia, NZ and a few others are pawns, having their curencies bid up beyond their control as outside curencies flow in and exchange to local currencies for investment purposes It is a dance for the nimble (kind of like musical chairs), because when the U.S. and the EU begin to raise their interest rates (likely around this time next year) then the outflows will begin and those currencies and markets that have been bid up will fall precipitously as the outflows begin en masse. This time around the rates could move up rapidly in places like the U.S., and smaller countries like Thailand will have very little power to do much to resist the inertia once it begins. David Stockman just wrote an interesting book that lends some insight as to what has happened in the U.S. as well as Europe that has led us to this point in time, it is called "The great deformation(the corruption of capitalisim)" check it out if you get a chance P.S. For those out their who think that I am just a U.S.A. promoter I will let you know that I think the U.S. equity markets are also very overvalued by all this cheap money as well, my instincts tell me that all of this does not end very well, hopefully my instincts are wrong.

The west can not start to raise interest rates "this time next year" or the year after or for a long long time after that, because they are insolvent; they can not afford thier spend commitments as it is with near zero interest rates, to the extent they are creating money to buy thier own bonds, any raise in interest rates would excasserbate thier predicament substantially!

I am 90% sure we are in the early stages of a larger trend of western money creation and devalueing currencies, wich will probably last a decade or two (if they don't take big hits down more quickly). The wild card is the Thais could engage in thier own QE or some other measures of thier own to bring it down or speculators/ market movers dumping bht in a contrived or panicked way.

[NeverSure]

er, um, no.

the main reason for the 97 crash was the pegged currency and massive interest rate differential. But I shall stop speaking sense now and let you return to your warped sense of history. That is much more entertaining.

Er, no, which came first, the chicken or the egg? Thailand was crashing, and could no longer exist by pretending that 25 THB was worth 1 USD. The Thai baht was no longer worth that due to fundamentals in a crashing Thailand.

Thailand had to float the baht to survive and when it did, its currency lost much of its value.

This was due to fundamentals in Thailand, not external forces.

What happened was that instead of Thailand telling the world that 25 baht was worth $1, the world told Thailand what the baht was worth and it wasn't much.

Thailand had to borrow billions from the IMF to pay its bills and to keep its banks open.

You are focusing on the effect, not the cause.

So, I continue to entertain Mr. Naam, who I hope doesn't get caught, but I'm betting he doesn't. I think he's too cagey.

Edited April 21, 2013 by NeverSure

[NeverSure]

"What happened was that instead of Thailand telling the world that 25 baht was worth $1, the world told Thailand what the baht was worth and it wasn't much."

Please read that more than once.

[NeverSure]

As someone pointed out above, the problem is more that the major currencies such as USD, EUR, JPY, GBP are all weakening, due to the economic issues they are facing, and policies to deal with it. They are deliberately maintaining low interest rates, QE, encouraging weak currencies and so on.

A traditional measure would be for Thailand to cut interest rates to weaken its currency. Unfortunately this risks increasing inflation. Other govt factors have already stoked the inflation fire.

So the government are stuck with the lesser of two evils.

Also to be remembered that when the major countries and currencies are actively manipulating their markets and currencies, Thailand simply doesn't have the firepower to move things in the opposite way. USD, EUR, GBP etc have all been weakening, Thailand can't fight these easily with the resources it has.

Fletch

Fletch and Naam seem to be the only ones who understand the underlying dynamic here. The world is awash with cheap money and that cheap money(Dollars, Euros and Yen) always finds its way to the path with least resistance and greatest reward, and countries like Thailand, Austrailia, NZ and a few others are pawns, having their curencies bid up beyond their control as outside curencies flow in and exchange to local currencies for investment purposes It is a dance for the nimble (kind of like musical chairs), because when the U.S. and the EU begin to raise their interest rates (likely around this time next year) then the outflows will begin and those currencies and markets that have been bid up will fall precipitously as the outflows begin en masse. This time around the rates could move up rapidly in places like the U.S., and smaller countries like Thailand will have very little power to do much to resist the inertia once it begins. David Stockman just wrote an interesting book that lends some insight as to what has happened in the U.S. as well as Europe that has led us to this point in time, it is called "The great deformation(the corruption of capitalisim)" check it out if you get a chance P.S. For those out their who think that I am just a U.S.A. promoter I will let you know that I think the U.S. equity markets are also very overvalued by all this cheap money as well, my instincts tell me that all of this does not end very well, hopefully my instincts are wrong.

The west can not start to raise interest rates "this time next year" or the year after or for a long long time after that, because they are insolvent; they can not afford thier spend commitments as it is with near zero interest rates, to the extent they are creating money to buy thier own bonds, any raise in interest rates would excasserbate thier predicament substantially!

I am 90% sure we are in the early stages of a larger trend of western money creation and devalueing currencies, wich will probably last a decade or two (if they don't take big hits down more quickly). The wild card is the Thais could engage in thier own QE or some other measures of thier own to bring it down or speculators/ market movers dumping bht in a contrived or panicked way.

The West will have no choice but to raise interest rates if inflation becomes the bigger monster. Theoretically all of this money printing should cause inflation. So far it hasn't been out of control, although most consumers I know think it is worse than the governments' official numbers.

Right now the West is focused on trying to improved economic numbers such as unemployment - to fight off recession. But if all this creation of new fiat money begins to show as inflation, the only weapon in the arsenal is to raise interest rates to cool things down. It's the classic rock and hard place.

The classic truism:

1. You can control the price of something, but when you do you lose control of the amount that is traded. The market will decide how much it will trade at that price. Thailand is seeing that in the rice scheme.

2. Instead of controlling the price, you can control the amount taken to market. When you do that, you lose control of price. The market will say how much it will pay for the controlled amount.

If people just understood this one principal, everything else would look easier.

Thailand continues to fail to understand this. They nearly broke themselves trying to tell the world that 25 baht = $1 until '97. When they finally stopped that nonsense, the baht crashed. The market had a different opinion of the value of the baht. The world has a different opinion of the value of rice and rice sales have crashed. When the corrupt fundamentals of Thailand come to light, the world will again have a different opinion of the value of Thai real estate and the Thai baht.

Edited April 21, 2013 by NeverSure

[chiang mai]

er, um, no.

the main reason for the 97 crash was the pegged currency and massive interest rate differential. But I shall stop speaking sense now and let you return to your warped sense of history. That is much more entertaining.

Er, no, which came first, the chicken or the egg? Thailand was crashing, and could no longer exist by pretending that 25 THB was worth 1 USD. The Thai baht was no longer worth that due to fundamentals in a crashing Thailand.

Thailand had to float the baht to survive and when it did, its currency lost much of its value.

This was due to fundamentals in Thailand, not external forces.

What happened was that instead of Thailand telling the world that 25 baht was worth $1, the world told Thailand what the baht was worth and it wasn't much.

Thailand had to borrow billions from the IMF to pay its bills and to keep its banks open.

You are focusing on the effect, not the cause.

So, I continue to entertain Mr. Naam, who I hope doesn't get caught, but I'm betting he doesn't. I think he's too cagey.

That's pretty audacious NS, in post 122 I tell you:

"OK we have to end our little chat there because we've just gone cyclical again, as we have discussed previously the 1997 crash resulted from the

currency peg and not from real estate (think cause and effect) but if it suits you to think in different terms, go for it, other readers may

however want to do their own research on this point".

.....which you deny!

and now here in the post above you tell Samran that he's, "focusing on the effect, not the cause"!

If nothing else your posts are entertatining, even if you are hugely inconsistence in the things you write!

[MrWorldwide]

For the first time in months, 100AUD will get me less than 3K baht, but I'm not freaking out. It will still get me more than 300MYR

None of us knows where it will be 12 months from now, but anywhere between 27 and 30 would be 'pig in mud' territory for me. Granted, everything has gone up - particularly in BKK - but how many of us go to a bar and spend a 150-300 dollars a night, every night, back in Farangland ?

[lounger]

The strong economies will have massive inflation as a result of their printing money. This option is also available to Thailand. They could use the money to finance their massive infrastructure plans.

At present a false picture is being presented because the weakening currencies are being invested in strong Thai baht. This will continue while the baht is the stronger currency; it will also continue to make the baht stronger.

When will this flow of investments end? Forecasts are that maybe 2015/6 will see the reverse fund flows. We don't know what the thai authorities are doing but I can't believe they are ignoring the move of baht exports from the traditional role of manufactured goods and tourism to finance related products.

Of course the article tells us there is a concern but for sure they are not going to confide in us, the general public.

[kevkev1888]

For the first time in months, 100AUD will get me less than 3K baht, but I'm not freaking out. It will still get me more than 300MYR

None of us knows where it will be 12 months from now, but anywhere between 27 and 30 would be 'pig in mud' territory for me. Granted, everything has gone up - particularly in BKK - but how many of us go to a bar and spend a 150-300 dollars a night, every night, back in Farangland ?

Not many. Same here I should think.

[andytime]

Nothing is ever a one way bet. Easy money from Japan and the states has flowed in search of yield causing the baht to rise. Japan's weakening yen will give China, Korea and Thailand huge headaches. If Japan gets inflation the bond market blows up along with much greater declines in the yen. The possible ramifications - likely hot money flows in reverse out of Asia would be my guess. America whilst dead as a dodo will not be the first under the bus that is for sure. The timeline of events will be interesting but a substantial weakening of the EU or yen will likely bring some changes most do not expect at the moment.

[Naam]

Nothing is ever a one way bet. Easy money from Japan and the states has flowed in search of yield causing the baht to rise. Japan's weakening yen will give China, Korea and Thailand huge headaches. If Japan gets inflation the bond market blows up along with much greater declines in the yen. The possible ramifications - likely hot money flows in reverse out of Asia would be my guess. America whilst dead as a dodo will not be the first under the bus that is for sure. The timeline of events will be interesting but a substantial weakening of the EU or yen will likely bring some changes most do not expect at the moment.

and then, not to forget... the sky will be falling!

[RogueLeader]

It is both good and bad at the same time. Bad for people that want to come here on a cheep holiday, but good for Thailand, it means that they are starting to build an economy that does not fully rely on tourism for income. Thailand is victim to tourism in so many ways, which is evident when you see the lack of Thai culture in touristy areas. I would be nice for Thailand to have tourism based on its culture and a nice place to stay (and affordable) rather than tourists just coming here and doing what they like because they can pay for it.

The same naive nonsense. Thailand's economy doesn't rely on tourism and certainly not expats spending. Where does this idea come from?

QUOTE

He said that the agenda was mainly about the export target, not about the exchange rates.

GDP

Tourism = about 7% GDP

i.e. 25 million tourists, the expat and his stamp collection (i did like that LOL)

Exports = About 70% GDP

Please get some perspective. With exports about 10 times more than tourism, Thailand is not reliant on tourism or expat spending for that matter. The agenda is EXPORTS!!! that means trying to be competitive with other countries in the region with high manufacturing output.

As for "Thai culture being compromised" in tourist venues. I'll leave that for another thread.

Tourism is an export.

[copa8]

Surely they have to do something soon.

Inevitably it will hit the tourist areas with people who come here for a holiday and the ex-pat living off his pensions, finding their currency is no longer enough due to a 10 -25% loss in value in the last 6 months. Yes most expatswill stay and touristswill still come to Thailand but less Baht means less goods being bought.

This is made worse by inflation here which has been quite noticeable over the past year.

Will not hold my breath though, the powers that be in the Thai government will continue to do the same as always, talk but no action.

I second this. As a regular visitor to the Kingdom (my girlfriend resides permanently with me here but we go home to visit her family from time to time, and it gives me a break from work), we do not travel on a fixed schedule - we are not business travelers but do spend a lot, we stay in good places and spend what we work hard for at home. I would imagine we are not the only ones with this kind of approach to visits to Thailand.

We are currently sitting at home each day, watching the exchange rate waiting for it to straighten up before we return. the NZ Dollar (where we are from) has been one of the top performers in the world the past year) has also been losing ground against the baht, and I have noticed travel agents here have stopped advertising Thailand and started advertising Malaysia (again) and also now Vietnam and South America.

Inflation will increase even more when the tourists stop - as you know in Thailand when purchase numbers decrease, Thai business ramps up its price to cover the shortfall. More tough times for the Thai economy? Sadly, me thinks so. May be a while before Teerak brings "the Farang" home to say hello to paw me.. We are considering a trip to Nepal this year to do some trekking instead.

Here in the US, they are advertising the Carribean, Mexico, Costa Rico. No mention of Thailand.. Even the Thai's who live here in the US say they can't afford to go home to visit right now and the ones who own small asian food shops can't afford to buy Thai products.

maybe they are advertising those places because they are all located a lot closer than thailand? big savings on the air ticket alone.

[copa8]

The farang is not really a part of the equation. Our impact is negligible. The foreign currency weakness is a concern for importation and global markets.

Maybe the Thai's could devalue the baht like the Chinese did to their money for years. Now it is biting China in the large proverbial ass though!

if by farang = europe, u.s., australia, etc, then yes, your impact is tiny. per wiki, of the top 10 visiting nationalities to thailand, 7 are from asia. in 2012, 930,599 aussies visited vs 2,789,345 chinese and 2,560,963 malaysians.

all farangs could leave thailand and don't think they will be missed, as the void will be filled by others from asia.

[Gassit]

The strengthening of the baht is not primarily of Thailand's making. The US, Japan and other countries printing lots of money to stimulate their economies - call it quantitative easing or whatever - is a major factor behind this. Falling exchange rates also increase the export competitiveness of the big boys in what is effectively an exchange rate war.

Due to lack of financial scale Thailand and many other smaller economies - can do little to protect themselves and their own export industries in the face of this onslaught - until/if/when other countries' policies begin to change - the baht will remain strong.

Thailand is not the only country suffering, here is what economists in Australia have to say:

Capping the Australian dollar

Amid growing alarm, the call for a rescue remedy grows louder.

TheAustralian dollar's value is being inflated by Australia's economic strength and relatively high interest rates, plus huge inflows of foreign investment to fund major infrastructure for the resources boom.

Simultaneously, Australia is caught in the grip of what some describe as a currency war, as trading partners like Japan, China, Europe and the US print mountains of money in a bid to stimulate their economies.

Leading economist and former government adviser Professor Ross Garnaut has joined the chorus of those in agriculture and manufacturing calling for the Reserve Bank to intervene by capping the dollar.

"This would involve cutting interest rates and buying large quantities of foreign currency to deflate our own," he said.

It is a controversial idea which many, like economist Saul Eslake, disagree with.

"Much as I have enormous respect for Professor Garnaut and for that matter Professor Warwick McKibbin who was making the same suggestion last year, I don't agree with either of them," Mr Eslake said.

"I think it may well not work, would expose the Reserve Bank to considerable capital loss if it doesn't work, and would cost the Reserve Bank an enormous amount to implement even if it did actually work."

The Australian dollar was floated in December 1983 to improve the efficiency of Australian industry.

The dollar's rise has forced local producers to grow more productive and competitive.

This has been a boon for consumers delivering greater choice and cheaper prices through imports.

Free marketeers believe any attempt to cap the free-floating dollar now by cutting interest rates would only deflate the high dollar temporarily before inevitably inflation - and the housing market getting out of control.

"I don't think anyone in Australia really wants to see higher inflation or higher interest rates as a by-product of an attempt to cap the exchange rate, and the other risk we might conceivably run would be reigniting a housing bubble," Mr Eslake said.

Edited April 23, 2013 by Gassit

[Gassit]

The strengthening of the baht is not primarily of Thailand's making. The US, Japan and other countries printing lots of money to stimulate their economies - call it quantitative easing or whatever - is a major factor behind this. Falling exchange rates also increase the export competitiveness of the big boys in what is effectively an exchange rate war.

Due to lack of financial scale Thailand and many other smaller economies - can do little to protect themselves and their own export industries in the face of this onslaught - until/if/when other countries' policies begin to change - the baht will remain strong.

Japan has been using QE for 20 years now - the US and UK for 5 years - it has not suddenly started. End of December the rate was nearly 50Bt to the pound and now it is 43Bt - that is 14% in less than 4 months.

The Thai economy (based on GDP) is around #30 in the world so is not that small, but is viewed as very strong - possibly because it actually produces goods rather than creating income by financial wheeler-dealing. Manufacturing countries (particularly those that have good exports) will always be a better long term bet.

The banks/government are allowing the Baht to rise so they can boost their foreign currency reserves but it is going too fast. If they raise interest rates, more money will flow in and the rate will go even higher. If they drop interest rates (currently 3%) to match other countries it should stabilise things in the short term but could well create higher inflation. Its the same problem China has.

Read the post properly before commenting - I didn't say that QE had suddenly started - but yes it does take time to effect exchange rates.

Perhaps the Thai economy may be 30th in the world (?) - but it is very small compared to the US/Japan/China/EU etc. One way to combat a strong currency (aside from cutting interest rates) is to start buying other major currencies such as the USD. In this regard Thailand along with Australia, NZ and other smaller countries, many with strong economies andc suffering from exceptionally strong exchange rates, have limited options because they will never have enough scale = central bank monetary reserves. There is no plot by Thailand to manipulate it's foreign currency reserves or hold on to a strong exchange rate - quite the opposite.

[Gassit]

Please note: Before making any comments on a thread involving monetary policy, posters are advised to read Not The Nation's excellent 'Stock Market Correction Delights Poorest, Stupidest Expats'

priceless! delicious! on the dot!

The author appears to have also written at least half of the contributions on this thread as well. Well done!

Even though the poster may have plenty of entries none will win the "Economic Literacy Award" Perhaps the runners up prize of "Encouraging stupid expat. stereotypes while pretending to be a moderator" is more appropriate

[NeverSure]

The strengthening of the baht is not primarily of Thailand's making. The US, Japan and other countries printing lots of money to stimulate their economies - call it quantitative easing or whatever - is a major factor behind this. Falling exchange rates also increase the export competitiveness of the big boys in what is effectively an exchange rate war.

Due to lack of financial scale Thailand and many other smaller economies - can do little to protect themselves and their own export industries in the face of this onslaught - until/if/when other countries' policies begin to change - the baht will remain strong.

Japan has been using QE for 20 years now - the US and UK for 5 years - it has not suddenly started. End of December the rate was nearly 50Bt to the pound and now it is 43Bt - that is 14% in less than 4 months.

The Thai economy (based on GDP) is around #30 in the world so is not that small, but is viewed as very strong - possibly because it actually produces goods rather than creating income by financial wheeler-dealing. Manufacturing countries (particularly those that have good exports) will always be a better long term bet.

The banks/government are allowing the Baht to rise so they can boost their foreign currency reserves but it is going too fast. If they raise interest rates, more money will flow in and the rate will go even higher. If they drop interest rates (currently 3%) to match other countries it should stabilise things in the short term but could well create higher inflation. Its the same problem China has.

Read the post properly before commenting - I didn't say that QE had suddenly started - but yes it does take time to effect exchange rates.

Perhaps the Thai economy may be 30th in the world (?) - but it is very small compared to the US/Japan/China/EU etc. One way to combat a strong currency (aside from cutting interest rates) is to start buying other major currencies such as the USD. In this regard Thailand along with Australia, NZ and other smaller countries, many with strong economies andc suffering from exceptionally strong exchange rates, have limited options because they will never have enough scale = central bank monetary reserves. There is no plot by Thailand to manipulate it's foreign currency reserves or hold on to a strong exchange rate - quite the opposite.

"There is no plot by Thailand to manipulate it's foreign currency reserves or hold on to a strong exchange rate - quite the opposite."

I agree with this. However there is a plot by the major economies to keep their currency values low. There is a currency war as each country tries to stimulate its exports and its economy. The fact that others currencies have fallen against the baht is by design of those other countries. Thailand is standing alone on a rock in the middle of a strong current, and that current is carrying cheap money which is competing with the baht.

If Thailand doesn't act, it will be the victim of the larger economies' currency wars. It will be unable to control the value of the baht as baht is purchased for use in Thailand, not just in the real estate boom, and eventually the bubble will pop.

Thailand's currency has been going up as it becomes a dumping ground for other currencies which want the higher interest rates and perceived good investment. But Thailand can't remain competitive in the international arena with its exports if the baht is too strong, coupled with a new minimum wage which is defeated by wages in Vietnam, Cambodia, Laos, and elsewhere.

Thailand's perceived prosperity isn't well established, and the money could flow out, or even stop flowing in, just as fast or faster than it came in recently.

Edited April 24, 2013 by NeverSure

[NeverSure]

It would be a mistake to confuse the events and the environment of 1997 with that of today, the two are not even closely similar. It would also be a mistake to assume that what happened in the the US banking system six years ago will automatically happen here. And in answer to your question, yes, I do believe the numbers produced by the BOT and given a choice between those numbers and Mr Gambles numbers, the latter doesn't get a look in.

Thai banks have 40% of their loans as real estate loans. I believe there is a real estate bubble and this overbuilding is going to bite the builders and the banks. You don't have to agree of course. I said let's talk about it again in 5 years.

Yes, the one single thing that contributed most to bringing the Thai economy down in 97 was a real estate bubble bursting. It popped the banks and Thailand had to borrow billions from the IMF to bail them out. Some of those loans are still on the books and some of the buildings are either still empty or have been torn down.

So no, I don't trust any Thai numbers.

My BIGGEST problem with Thailand is corruption. I don't believe a thing they say. My second biggest is what I see with my own two eyes.

OK we have to end our little chat there because we've just gone cyclical again, as we have discussed previously the 1997 crash resulted from the currency peg and not from real estate (think cause and effect) but if it suits you to think in different terms, go for it, other readers may however want to do their own research on this point.

Geez. You just keep coming back.

If what you're saying is true, and with NO explanation as to what caused Thailand to uncouple the baht from the dollar, then tell me why this problem in Thailand on August 5, 1997 resulted in Thailand having to borrow 17 billion dollars from the IMF to bail its banks out of their bad loans?

Why did Thailand then have to close 42 of its suddenly defunct banks and "finance companies" at the insistence of the IMF?

What gave the IMF the power to make Thailand raise taxes and adopt a general austerity program?

Why did the IMF think that Thailand needed an austerity program? Because the baht was coupled to the dollar? Gimme a break!!! There's no possible correlation.

Do you not see the crashing real estate market in any way coupled with the crashing Thai economy and then the crashing banks and then the crashing baht?

If it was just the coupling of the baht with the dollar and a need (for some reason you don't explain) to decouple, then why did this poison immediately spread to South Korea, Hong Kong and China? ???? Were they 1. Also coupled with the dollar or 2. also overheated and inflated?

Question on the exam. How did this so mightily also affect Russia and Brazil, if it was all about the coupling of the baht, and that only?

You make a statement that it was about the coupling of the baht, but you have no idea what suddenly caused that to be a problem when it had worked OK for so many years. You don't get the fundamental, underlying cause(s).

Failure to see the underlying causes will be a failure to recognize it next time.

[chiang mai]

It would be a mistake to confuse the events and the environment of 1997 with that of today, the two are not even closely similar. It would also be a mistake to assume that what happened in the the US banking system six years ago will automatically happen here. And in answer to your question, yes, I do believe the numbers produced by the BOT and given a choice between those numbers and Mr Gambles numbers, the latter doesn't get a look in.

Thai banks have 40% of their loans as real estate loans. I believe there is a real estate bubble and this overbuilding is going to bite the builders and the banks. You don't have to agree of course. I said let's talk about it again in 5 years.

Yes, the one single thing that contributed most to bringing the Thai economy down in 97 was a real estate bubble bursting. It popped the banks and Thailand had to borrow billions from the IMF to bail them out. Some of those loans are still on the books and some of the buildings are either still empty or have been torn down.

So no, I don't trust any Thai numbers.

My BIGGEST problem with Thailand is corruption. I don't believe a thing they say. My second biggest is what I see with my own two eyes.

OK we have to end our little chat there because we've just gone cyclical again, as we have discussed previously the 1997 crash resulted from the currency peg and not from real estate (think cause and effect) but if it suits you to think in different terms, go for it, other readers may however want to do their own research on this point.

Geez. You just keep coming back.

If what you're saying is true, and with NO explanation as to what caused Thailand to uncouple the baht from the dollar, then tell me why this problem in Thailand on August 5, 1997 resulted in Thailand having to borrow 17 billion dollars from the IMF to bail its banks out of their bad loans?

Why did Thailand then have to close 42 of its suddenly defunct banks and "finance companies" at the insistence of the IMF?

What gave the IMF the power to make Thailand raise taxes and adopt a general austerity program?

Why did the IMF think that Thailand needed an austerity program? Because the baht was coupled to the dollar? Gimme a break!!! There's no possible correlation.

Do you not see the crashing real estate market in any way coupled with the crashing Thai economy and then the crashing banks and then the crashing baht?

If it was just the coupling of the baht with the dollar and a need (for some reason you don't explain) to decouple, then why did this poison immediately spread to South Korea, Hong Kong and China? ???? Were they 1. Also coupled with the dollar or 2. also overheated and inflated?

Question on the exam. How did this so mightily also affect Russia and Brazil, if it was all about the coupling of the baht, and that only?

You make a statement that it was about the coupling of the baht, but you have no idea what suddenly caused that to be a problem when it had worked OK for so many years. You don't get the fundamental, underlying cause(s).

Failure to see the underlying causes will be a failure to recognize it next time.

For the third time that I can recall, here's the relaivant extract and the link:

"The crisis started in Thailand with the financial collapse of the Thai baht after the Thai government was forced to float the baht (due to lack of foreign currency to support its fixed exchange rate), cutting its peg to the US$, after exhaustive efforts to support it in the face of a severe financial overextension that was in part real estate driven (note that it says in part). At the time, Thailand had acquired a burden of foreign debt that made the country effectively bankrupt even before the collapse of its currency. ^[1] As the crisis spread, most of Southeast Asia and Japan saw slumping currencies,^[2] devalued stock markets and other asset prices, and a precipitous rise in private debt.^[3]".

I've highlighted the parts you really must try and remember for the next time!

http://en.wikipedia.org/wiki/1997_Asian_financial_crisis