The Market Should Decide Baht Value: Govt

[Lite Beer]

The market should decide baht value: Govt
The Nation on Sunday April 28, 2013 1:00 am

Kittiratt

BANGKOK: -- Kittiratt says blocking fund flows not the solution; wins praise from Korn

Finance Minister Kittiratt Na-Ranong said yesterday he does not wish to see state agencies implement any drastic measures to block fund flows to stem the strengthening of the baht.

He said Prime Minister Yingluck Shinawatra had instructed economic agencies such as the Bank of Thailand (BOT) to handle the baht's value carefully.

"I believe concerned agencies will use extra caution, because we have already learned a lesson that blocking fund flows affects investors' confidence. If there is no alternative, the measure may be necessary, but we do have other alternatives - for instance helping investors to seek opportunities in new markets such as in Japan," said Kittiratt, who is also deputy prime minister.

The government on Friday met with BOT Governor Prasarn Trairatvorakul to discuss the strengthening of the baht and its impact on the economy.

After the meeting Kittiratt said the government has yet to come up with measures to curb the trend, but would closely monitor the situation. Although the government believes reducing the policy interest rate may cause the baht to depreciate, it has agreed that further research is needed into possible adverse effects of such a cut.

Kittiratt said the government would allow the market mechanism to decide the value of the baht, saying the strengthening of the currency is a result of business confidence in the Thai economy, which is expected to grow 5 per cent this year.

He was speaking via the weekly TV programme, "The Yingluck Government Meets the People".

The minister admitted that the government has been concerned about the stability of the baht and did not want to see it strengthening or weakening to unmanageable levels for importers and exporters. He added that the government has not been complacent about the recent strengthening of the baht, but has to comply with the Bank of Thailand Act and respect officials and committees in charge of the country's financial and monetary policies.

Kittiratt had earlier been outspoken about his wish to see the BOT reduce the interest rate, which the government believes is too high, causing foreign inflows and pushing up the value of the baht.

He said yesterday that he has not pressured the BOT or called any urgent meetings of its Monetary Policy Committee.

"The country's economy is strong and we are making sure that the economy is growing to its full potential, and that economic policies will not bring about special benefits to a particular sector and adversely affect another. In other words, or in layman's terms, our duty is to manage the overall economy and balance out happiness and unhappiness."

He said state economic agencies had earlier predicted the country's economic growth would hover above 5 per cent, but if the government could not solve the strengthening of the baht, growth may be less than targeted.

Kittiratt said the country has allowed the market mechanism to dictate the value of the baht since it was floated in 1994. Since then, foreign funds have flowed into the country because Thailand has enjoyed trade and current account surpluses, causing the baht to strengthen from 50 per US dollar to 30 per dollar.

He said later the country saw a balance of exports and imports, but the baht continued to strengthen because foreign funds kept flowing in - not for direct investment but to invest in financial instruments. He said the world's major economies such as the US and Japan have been implementing financial policies to weaken their currencies by pumping more money into their financial systems.

Former finance minister Korn Chatikavanij posted a message on his Facebook page praising Kittiratt over his stance on the value of the baht. Korn said investors are not afraid of interest reductions, but of other "measures". The fact that the BOT insists on not reducing the interest rate, but has sent a signal that it is concerned about the strengthening of the baht, has caused currency speculators to interpret that as meaning that the agency may resort to "other measures".

"This is the reason the baht has depreciated over the past two days," he wrote.

-- The Nation 2013-04-28

[moe666]

there are so many subsidies, and high import taxes on certain products that there is no real free market in Thailand

[Thai at Heart]

So what was all the fuss about, as though a 1 point devaluation in the baht is going to make all the exporters over the moon.

They won't be happy unless it goes back to 35+.

[slapout]

This finance minister has made more U turns than a post man. He keeps telling us he is on top/in charge, well line out the criteria of what will be done, at what point, in baht rate, export volume, etc, and get cracking.

[Pimay1]

So what was all the fuss about, as though a 1 point devaluation in the baht is going to make all the exporters over the moon.

They won't be happy unless it goes back to 35+.

35+...I'll drink to that.

[Robby nz]

Not a very good attempt at face saving interspaced with more white lies.

He did get his ass kicked at the recent meeting with the BOT and others.

And possibly even learnt a little.

As stated on a precious topic it has been the Finance Ministries selling of inflation proof bonds and failing to collect due tax and fees from overseas investors that have had a large part to play in keeping the Baht high in the last 3 or 4 months.

Good on the BOT for sticking to their guns and doing their job.

[Locationthailand]

The whole idea of a free floating currency is exactly that. Let the market decide on the value without third party interference.

[alant]

So what was all the fuss about, as though a 1 point devaluation in the baht is going to make all the exporters over the moon.

They won't be happy unless it goes back to 35+.

35+...I'll drink to that.

is that to the £?

[hellodolly]

Not a very good attempt at face saving interspaced with more white lies.

He did get his ass kicked at the recent meeting with the BOT and others.

And possibly even learnt a little.

As stated on a precious topic it has been the Finance Ministries selling of inflation proof bonds and failing to collect due tax and fees from overseas investors that have had a large part to play in keeping the Baht high in the last 3 or 4 months.

Good on the BOT for sticking to their guns and doing their job.

Well let us look at the man he openly admits he is a liar. He flip flops on what he says are we surprised. That he has been a big part of the rise in the Baht with out thinking of the spin off effects.

Yingluck had a chance to remove him in her last reshuffle after he admitted he was a liar but chose to keep him ass as he reminds her of her brother.

[how241]

So what was all the fuss about, as though a 1 point devaluation in the baht is going to make all the exporters over the moon.

They won't be happy unless it goes back to 35+.

+1....Baht at 30 won't change much.

[Naam]

So what was all the fuss about, as though a 1 point devaluation in the baht is going to make all the exporters over the moon.

They won't be happy unless it goes back to 35+.

+1....Baht at 30 won't change much.

3.42% of $213.7 billion = $6.25 billion = THB 182.75 billion ...not exactly pocket change

[Thai at Heart]

So what was all the fuss about, as though a 1 point devaluation in the baht is going to make all the exporters over the moon.

They won't be happy unless it goes back to 35+.

+1....Baht at 30 won't change much.

3.42% of $213.7 billion = $6.25 billion = THB 182.75 billion ...not exactly pocket change

My point is, it isn't going to have an extraordinary benefitial effect for exporters.

It is more likely to hit 25 than 35 if they keep printing USD like this.

[bigbamboo]

The market will decide the exchange rate, just as it will decide when the economic bubble is ready to burst.

[reader]

If Thailand was smart it would devalue the baht to encourage exports to be more competitive and to attract more tourists. As it currently stands, Thailand is way too expensive for most, these days many are looking for cheaper options like Burma which is predicted to be the main tourist destination in the next few years. As for exports, well let's just say the country must be losing hand over fist to others like Vietnam who are now taking the lions share of the market. Loyalty only counts if your competitve, something which I'm afraid Thailand is no longer.

[Thai at Heart]

If Thailand was smart it would devalue the baht to encourage exports to be more competitive and to attract more tourists. As it currently stands, Thailand is way too expensive for most, these days many are looking for cheaper options like Burma which is predicted to be the main tourist destination in the next few years. As for exports, well let's just say the country must be losing hand over fist to others like Vietnam who are now taking the lions share of the market. Loyalty only counts if your competitve, something which I'm afraid Thailand is no longer.

And how high would you like inflation to go or how big would you like the property bubble to become if they "devalue" the baht?

[overherebc]

Wouldn't be wonderfull if we actually had a say or could really make a contribution that would would make us richer.

Just sayin like !

[waza]

Is he lying? I just cant tell anymore

[reader]

If Thailand was smart it would devalue the baht to encourage exports to be more competitive and to attract more tourists. As it currently stands, Thailand is way too expensive for most, these days many are looking for cheaper options like Burma which is predicted to be the main tourist destination in the next few years. As for exports, well let's just say the country must be losing hand over fist to others like Vietnam who are now taking the lions share of the market. Loyalty only counts if your competitve, something which I'm afraid Thailand is no longer.

And how high would you like inflation to go or how big would you like the property bubble to become if they "devalue" the baht?

If you haven't noticed inflation (courtesey of the 300 baht wages per day) has already sky-rocked. The biggest mistake was allowing unregulated credit, which in tern is the main reason why the government felt the need to give into the demands of the general population to edorse credit as a way of life at the expense of the country. Not clever IMHO, as Thailand has now given a short term solution without thinking of the long-term consequences. Europe and USA did the same, and now we are suffering what can only be described as a 'false' economy. So now Thailand has followed suit, giving the population the same things as the west has also created it's own problems, like debt that consumers can ill-afford to take on, and the illusion that people are better off when infact they are not. And so in the end, the country in general will have to pay the cost of this borrowing bonaza.

[waza]

If Thailand was smart it would devalue the baht to encourage exports to be more competitive and to attract more tourists. As it currently stands, Thailand is way too expensive for most, these days many are looking for cheaper options like Burma which is predicted to be the main tourist destination in the next few years. As for exports, well let's just say the country must be losing hand over fist to others like Vietnam who are now taking the lions share of the market. Loyalty only counts if your competitve, something which I'm afraid Thailand is no longer.

And how high would you like inflation to go or how big would you like the property bubble to become if they "devalue" the baht?

If you haven't noticed inflation (courtesey of the 300 baht wages per day) has already sky-rocked. The biggest mistake was allowing unregulated credit, which in tern is the main reason why the government felt the need to give into the demands of the general population to edorse credit as a way of life at the expense of the country. Not clever IMHO, as Thailand has now given a short term solution without thinking of the long-term consequences. Europe and USA did the same, and now we are suffering what can only be described as a 'false' economy. So now Thailand has followed suit, giving the population the same things as the west has also created it's own problems, like debt that consumers can ill-afford to take on, and the illusion that people are better off when infact they are not. And so in the end, the country in general will have to pay the cost of this borrowing bonaza.

How can a government that is financing the budget and its populous policies through debt and wishes to massively increase that debt by 2.2 trillion baht then suggest fiscal responsability on the general public?

[Thai at Heart]

If Thailand was smart it would devalue the baht to encourage exports to be more competitive and to attract more tourists. As it currently stands, Thailand is way too expensive for most, these days many are looking for cheaper options like Burma which is predicted to be the main tourist destination in the next few years. As for exports, well let's just say the country must be losing hand over fist to others like Vietnam who are now taking the lions share of the market. Loyalty only counts if your competitve, something which I'm afraid Thailand is no longer.

And how high would you like inflation to go or how big would you like the property bubble to become if they "devalue" the baht?

If you haven't noticed inflation (courtesey of the 300 baht wages per day) has already sky-rocked. The biggest mistake was allowing unregulated credit, which in tern is the main reason why the government felt the need to give into the demands of the general population to edorse credit as a way of life at the expense of the country. Not clever IMHO, as Thailand has now given a short term solution without thinking of the long-term consequences. Europe and USA did the same, and now we are suffering what can only be described as a 'false' economy. So now Thailand has followed suit, giving the population the same things as the west has also created it's own problems, like debt that consumers can ill-afford to take on, and the illusion that people are better off when infact they are not. And so in the end, the country in general will have to pay the cost of this borrowing bonaza.

Just imagine how bad it would get if they dropped interest rates then. The cost of everything would skyrocket on the back of fuel alone.

[reader]

Government is spending way too much out of the coffers, like for example the rice-pledging scheme which is costing the country an enormous amount in resources The current budget balance remains in deficit, and public debt is over 40 percent of GDP and rising. The economy is also starting to over heat, and this issue must be addressed to allow Thailand to grow but at a manageable and steady rate. Thailand is by enlarge an export ecomony which accounts for appoximately 70% of GDP, so stemming inflation will be beneficial in the long term.

[Thai at Heart]

Government is spending way too much out of the coffers, like for example the rice-pledging scheme which is costing the country an enormous amount in resources The current budget balance remains in deficit, and public debt is over 40 percent of GDP and rising. The economy is also starting to over heat, and this issue must be addressed to allow Thailand to grow but at a manageable and steady rate. Thailand is by enlarge an export ecomony which accounts for appoximately 70% of GDP, so stemming inflation will be beneficial in the long term.

Huh? If it's overheating, normally they should raise interest rates which would have the effect of making more short term money flood in, strengthening the baht....

What they need to do is keep interest rates up to stop property going up too much, and then wait out this storm into the USA or Europe gets itself sorted out, then look at interest rates.

They need to monitor both exports and domestic demand not only exports, otherwise they could create another property mess like 97.

[NeverSure]

You don't have to raise interest rates to slow borrowing, nor does lowering have to stimulate borrowing. You also have the ability to tighten lending requirements.

There have been no-down car loans and home loans for Thais. This isn't necessary. You could require any condo developer to have a stronger financial statement, and to put more of his own money in the project by using a lower loan to value ratio. You could for instance make no condo development loans unless the borrower put 50% of his own money in it, up front, in escrow, in the bank. The first 50% of development costs would be paid out of that. If at that point the project didn't appear to be on budget, the loan could be revoked and the developer would have to find other investors or put up more of his own money.

You could even put a moratorium on condo development loans. That might not be a bad idea considering that big loans to Bangkok real estate developers just broke one Thai government owned bank (IBank) and another is also belly up but the reason for that isn't in the news. However, it is rare for a bank to lose all of its own capital to loan losses for things other than big real estate loans.

There is a lot that the Thai government and the BoT could do but remember, these are the same geniuses who brought us the rice scheme and the new minimum wage.

It appears to me that Thailand, probably without realizing it, is taking debt and unsustainable real estate growth into the same issues that bit the West.

[smedly]

The whole idea of a free floating currency is exactly that. Let the market decide on the value without third party interference.

ha - the problem - is the baht free floating or being manipulated by influences outside Thailand - I'll go for being manipulated - there's big money controlling the baht and right now Thailand has no say in the matter - sad thing is they don't even realise lol

[Naam]

The whole idea of a free floating currency is exactly that. Let the market decide on the value without third party interference.

ha - the problem - is the baht free floating or being manipulated by influences outside Thailand - I'll go for being manipulated - there's big money controlling the baht and right now Thailand has no say in the matter - sad thing is they don't even realise lol

existing restrictions on holding Baht offshore prevent any "outside manipulation" quite efficiently.

[Joe Mamma]

The thought of less than informed people making major decisions that affect so many citizens is mighty scary!

[Ricardo]

If the government is willing to let the markets set the rate, will they be abandoning the controls on account-holders sending money out of Thailand, anytime soon ?

And if bond-rates are set too high, resulting in a wave of foreign-money coming into Thailand & strengthening the Baht, will they be cutting the attractive interest-rates in response to the message from the markets ?

Or is this statement just fudge ?

[Thai at Heart]

You don't have to raise interest rates to slow borrowing, nor does lowering have to stimulate borrowing. You also have the ability to tighten lending requirements.

There have been no-down car loans and home loans for Thais. This isn't necessary. You could require any condo developer to have a stronger financial statement, and to put more of his own money in the project by using a lower loan to value ratio. You could for instance make no condo development loans unless the borrower put 50% of his own money in it, up front, in escrow, in the bank. The first 50% of development costs would be paid out of that. If at that point the project didn't appear to be on budget, the loan could be revoked and the developer would have to find other investors or put up more of his own money.

You could even put a moratorium on condo development loans. That might not be a bad idea considering that big loans to Bangkok real estate developers just broke one Thai government owned bank (IBank) and another is also belly up but the reason for that isn't in the news. However, it is rare for a bank to lose all of its own capital to loan losses for things other than big real estate loans.

There is a lot that the Thai government and the BoT could do but remember, these are the same geniuses who brought us the rice scheme and the new minimum wage.

It appears to me that Thailand, probably without realizing it, is taking debt and unsustainable real estate growth into the same issues that bit the West.

The condo thing is happening just as you describe.

[NeverSure]

If the government is willing to let the markets set the rate, will they be abandoning the controls on account-holders sending money out of Thailand, anytime soon ?

And if bond-rates are set too high, resulting in a wave of foreign-money coming into Thailand & strengthening the Baht, will they be cutting the attractive interest-rates in response to the message from the markets ?

Or is this statement just fudge ?

This is tricky. When you say "let the markets set the rate," do you mean for interest paid by banks, or for government debt as in bonds?

A general truism is that the higher the perceived risk, the higher the rate the borrower has to pay. Never forget that Thailand is classed as an "emerging market" and thus riskier in every way than established markets. I did say "perceived."

For instance, IBank, a Thai government owned bank is offering quite high interest rates for deposits, but it's in the news that they are essentially broke and need a bailout from the Thai government.

Thailand is running deficits and borrowing to cover them. They have to pay what the market demands in interest rates on bonds to attract that money. As an emerging market, they have to pay a much higher rate than a more trusted government, such as the UK.

I can't really parse your first sentence because the two ideas don't work together for me as cause and effect. I'm sure I just don't understand what you're asking.

[NeverSure]

You don't have to raise interest rates to slow borrowing, nor does lowering have to stimulate borrowing. You also have the ability to tighten lending requirements.

There have been no-down car loans and home loans for Thais. This isn't necessary. You could require any condo developer to have a stronger financial statement, and to put more of his own money in the project by using a lower loan to value ratio. You could for instance make no condo development loans unless the borrower put 50% of his own money in it, up front, in escrow, in the bank. The first 50% of development costs would be paid out of that. If at that point the project didn't appear to be on budget, the loan could be revoked and the developer would have to find other investors or put up more of his own money.

You could even put a moratorium on condo development loans. That might not be a bad idea considering that big loans to Bangkok real estate developers just broke one Thai government owned bank (IBank) and another is also belly up but the reason for that isn't in the news. However, it is rare for a bank to lose all of its own capital to loan losses for things other than big real estate loans.

There is a lot that the Thai government and the BoT could do but remember, these are the same geniuses who brought us the rice scheme and the new minimum wage.

It appears to me that Thailand, probably without realizing it, is taking debt and unsustainable real estate growth into the same issues that bit the West.

The condo thing is happening just as you describe.

In what way? I'm curious as to what you're thinking there.