OVERDRIVE
It seems like 1997 all over again
Thanong Khanthong

BANGKOK: -- Thailand is at risk of facing further capital outflow, which hurts the baht, tightens liquidity and brings down economic growth. Bank of Thailand governor, Dr Prasarn Trairatvorakul, said the whole country now needs a reality check to determine whether there are risks in the economy.

This follows the US Federal Reserve's signal that it might taper off its money printing and assets purchase programme under "quantitative easing" (QE). All the emerging markets have been hard hit by the reversal of capital since May 22 when Ben Bernanke, the Fed chairman, indicated that the Fed would slow down its QE if the US economy improved. Brazil, India, Turkey and Indonesia have been acutely affected by the dollar outflow.

After the collapse of the US financial system in 2008, the zero interest-rate policy and QE helped drive the dollar to seek higher returns in the emerging markets. For almost five years, the dollar flow into the emerging markets created asset bubbles. Now the dollar is about to head to the exit. This abrupt reversal of dollar funds is wreaking havoc in the emerging markets.

According to Kasikorn Research Centre, Thailand did not take in much foreign capital in 2009. But in 2010 the dollar funds started to flow into Thailand en masse, driving up equity prices and boosting the bond market. Thai investors enjoyed the dollar-fund party, making profits from higher asset prices. The real estate sector surged with a boom. The cheap dollar took advantage of Thailand's higher interest rate, relatively stable currency and economic growth potential. They all had a good time. It was as if the party would never end.

In 2010 alone, foreign funds were net buyers of Thai bonds to the tune of Bt241.6 billion, compared with Bt81.70 billion for equities. In 2011, the foreign funds continued to buy up the Thai bonds, becoming net buyers of Bt140.20 billion. But they took profits out of the stock market by becoming net sellers of Bt5.10 billion in Thai equities. In 2012, the foreign funds chipped in another Bt289.80 billion in net buy into the Thai bond market, and also Bt76.40 billion in net buy in the Thai stock market.

These three years were the high tide in the Thai financial markets, with the foreign investors providing the dollar to finance the party. Thai investors and policy-makers took it for granted that the dollar would be here to stay due to the sluggish recovery in Europe and the doubtful economic prospects in the US.

The money party continued in the first quarter of this year. Then on May 22, Bernanke came out to say that the party was over. The Fed might taper its QE. Since then the dollar funds have gone into reverse. It was a normal exit in the beginning, but now it looks more disorderly, and is disrupting the financial stability of the emerging markets.

In the early part of this year, foreign funds were still net buyers of Thai bonds, at Bt16 billion, but they took profits from the stock market with a net sell of Bt113.40 billion. Since May, the Thai stock market has lost more than 20 per cent of its value. The market capitalisation, which peaked at Bt13.5 billion, has fallen to less than Bt11.5 billion. More than Bt2 trillion in wealth effects has been wiped out in a hurry.

And this is just the beginning of the crisis, which is now reminiscent of the 1997 crisis. Brazil has just raised its interest rate by a 0.50 percentage point to 9 per cent to combat inflation. It has set up $60 billion in a foreign exchange fund to stop the real from plummeting. India has introduced a series of capital control measures to protect the rupee from a free fall. Indonesia has also introduced drastic measures to revive its sagging rupiah and deteriorating macro-economic conditions.

Now is not the time to sit back. The authorities must focus on economic stabilisation rather than trying to boost growth as in the past. The fiscal programme must be considered and the budget spent very efficiently to save bullets for future needs. All efforts must be made to protect the baht, which broke Bt32 against the dollar last week, from sliding downhill. It is time to stay tight and hold on for a rough ride ahead.


-- The Nation 2013-08-30

Surely it's all Soros fault again?

Soros had nothing to do with 1997:

http://en.wikipedia.org/wiki/George_Soros_conspiracy_theories

And to compare Brazil's economy against Thailand's is a bit far fetched don't you think Nation!

Soros had nothing to do with 1997:

http://en.wikipedia.org/wiki/George_Soros_conspiracy_theories

And to compare Brazil's economy against Thailand's is a bit far fetched don't you think Nation!

Of course he didn't, but they still blame him. All developing nations to where the hot money has flowed are going to see huge capital flight.

Kittirat was begging for a devaluation. He's going to get it.

Edited August 30, 201312 yr by Thai at Heart

Sadly, all this movement of money and recessionary fallout seems to be perfectly timed in favour of the Shinwatra govt. He's always been on the lucky end of the economic growth here, and the only time it went flat in the last decade (2009 recession) was when he was out of power briefly, the last 18 months have seen false boosts here from this dollar movement, that is now about to change. And with the rice subsidy debt and other borrowing, he might be on the cusp of a huge wake up call. Poor Yingluck, it will be on her watch and she'll be out of her depth to deal with it.

Don't care whose fault it is. Just would like 80 odd

Baht to the pound again for a wee while.

If only it were 1997 again, lead in the pencil, and a roof over the ole toolshed. Happy days.

Sadly, all this movement of money and recessionary fallout seems to be perfectly timed in favour of the Shinwatra govt. He's always been on the lucky end of the economic growth here, and the only time it went flat in the last decade (2009 recession) was when he was out of power briefly, the last 18 months have seen false boosts here from this dollar movement, that is now about to change. And with the rice subsidy debt and other borrowing, he might be on the cusp of a huge wake up call. Poor Yingluck, it will be on her watch and she'll be out of her depth to deal with it.

Excuse my limited understanding of all things financial, but isn't a drop in Baht value a very good thing for the Yingluck administration at this point? It devaluates the rice pledging debts, AND gives them a better chance to sell off their overpriced rice on foreign markets.

Sadly, all this movement of money and recessionary fallout seems to be perfectly timed in favour of the Shinwatra govt. He's always been on the lucky end of the economic growth here, and the only time it went flat in the last decade (2009 recession) was when he was out of power briefly, the last 18 months have seen false boosts here from this dollar movement, that is now about to change. And with the rice subsidy debt and other borrowing, he might be on the cusp of a huge wake up call. Poor Yingluck, it will be on her watch and she'll be out of her depth to deal with it. v

Sadly, all this movement of money and recessionary fallout seems to be perfectly timed in favour of the Shinwatra govt. He's always been on the lucky end of the economic growth here, and the only time it went flat in the last decade (2009 recession) was when he was out of power briefly, the last 18 months have seen false boosts here from this dollar movement, that is now about to change. And with the rice subsidy debt and other borrowing, he might be on the cusp of a huge wake up call. Poor Yingluck, it will be on her watch and she'll be out of her depth to deal with it.

Excuse my limited understanding of all things financial, but isn't a drop in Baht value a very good thing for the Yingluck administration at this point? It devaluates the rice pledging debts, AND gives them a better chance to sell off their overpriced rice on foreign markets.

And makes imports more expensive, including oil and fuels inflation. But don't get too excited, that supposed drop in the Baht is some way off and may well never happen. One of the big differences between today and 1997 is that the BOT has USD 172 billion in foriegn currency reserves, that's more than the UK or the US and it isn't spending any of it defending its currency!

Edited August 30, 201312 yr by chiang mai

.....Is the whole financial community on crack all of the time?

Mostly

Don't care whose fault it is. Just would like 80 odd Baht to the pound again for a wee while.

Me to.

It seems like a pipe dream But it can happen.

Dollar at 40 and pound at 75.....back to what it used to be....nothing wrong with that;)

Soros had nothing to do with 1997:

http://en.wikipedia.org/wiki/George_Soros_conspiracy_theories

And to compare Brazil's economy against Thailand's is a bit far fetched don't you think Nation!

Try telling that to the majority of Thais.

Only last week was I talking to a group of Thais who still blame Soros for the economic collapse.

We live in a pretty fuc_ked up world if one nation simply announcing possible changes in monetary policy can push investors into a frenzy that can in turn bring several other countries to the brink of financial collapse. Is the whole financial community on crack all of the time?

Well if those countries didn't have to rely on the generosity of foreigners and foreign capital then they wouldn't have anything to worry about would they?

Sadly, all this movement of money and recessionary fallout seems to be perfectly timed in favour of the Shinwatra govt.

Yes because it's always terribly sad if things work in favour of a duly elected government, when they're not the party you support...

Edited August 30, 201312 yr by bobl

Soros had nothing to do with 1997:

http://en.wikipedia.org/wiki/George_Soros_conspiracy_theories

And to compare Brazil's economy against Thailand's is a bit far fetched don't you think Nation!

Mataher Mohamad of Malaysia and the Chavalit government went to great lengths to blame Soros and a few others for speculator / institutional investors, when the main trouble speculators were insider traders in their own countries in the first place. But Soros was their whipping boy on the public stage, anything but take the blame for their own mismanagement and crony capitalism.

Edited August 30, 201312 yr by animatic

Sadly, all this movement of money and recessionary fallout seems to be perfectly timed in favour of the Shinwatra govt. He's always been on the lucky end of the economic growth here, and the only time it went flat in the last decade (2009 recession) was when he was out of power briefly, the last 18 months have seen false boosts here from this dollar movement, that is now about to change. And with the rice subsidy debt and other borrowing, he might be on the cusp of a huge wake up call. Poor Yingluck, it will be on her watch and she'll be out of her depth to deal with it.

Excuse my limited understanding of all things financial, but isn't a drop in Baht value a very good thing for the Yingluck administration at this point? It devaluates the rice pledging debts, AND gives them a better chance to sell off their overpriced rice on foreign markets.

And makes imports more expensive, including oil and fuels inflation. But don't get too excited, that supposed drop in the Baht is some way off and may well never happen. One of the big differences between today and 1997 is that the BOT has USD 172 billion in foriegn currency reserves, that's more than the UK or the US and it isn't spending any of it defending its currency!

At the moment, no.

But what if the best and brightest start panicking?

Sadly, all this movement of money and recessionary fallout seems to be perfectly timed in favour of the Shinwatra govt. He's always been on the lucky end of the economic growth here, and the only time it went flat in the last decade (2009 recession) was when he was out of power briefly, the last 18 months have seen false boosts here from this dollar movement, that is now about to change. And with the rice subsidy debt and other borrowing, he might be on the cusp of a huge wake up call. Poor Yingluck, it will be on her watch and she'll be out of her depth to deal with it.

Excuse my limited understanding of all things financial, but isn't a drop in Baht value a very good thing for the Yingluck administration at this point? It devaluates the rice pledging debts, AND gives them a better chance to sell off their overpriced rice on foreign markets.

And makes imports more expensive, including oil and fuels inflation. But don't get too excited, that supposed drop in the Baht is some way off and may well never happen. One of the big differences between today and 1997 is that the BOT has USD 172 billion in foriegn currency reserves, that's more than the UK or the US and it isn't spending any of it defending its currency!

At the moment, no.

But what if the best and brightest start panicking?

You have my word I wont panic

More seriously though: if you've read some of the absolute tosh that's been written in the UK press this last week you'd understand, the papers have been full of how the Asian countries (and Thailand was named specifically) have been spending huge sums defending their currencies. In truth it appears that the BOT has not spent a single dime since before this currrent escapade they were actively working to weaken the baht and that was costing them money, this whole business has actually saved them money and allowed water to find its own level naturally.

EDIT: actually, looking at USD/THB this morning it's at 32.11 and here in the Nation we've got people saying we must stop the baht from sliding, a few ago it was 28.50 and people were screaming it's too strong and it must be weakened, perhaps Thailand hasn't yet learned that it can't always get the goldilocks exchange rate that it wants!

Edited August 30, 201312 yr by chiang mai

Another look at the same subject:

Emerging market rout is too big for Fed to ignore...

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/10272285/Emerging-market-rout-is-too-big-for-the-Fed-to-ignore.html

Dollar at 40 and pound at 75.....back to what it used to be....nothing wrong with that;)

Might be able to give the odd 20bt tip in that case!

Dollar at 40 and pound at 75.....back to what it used to be....nothing wrong with that;)

If the Dollar goes back to 40 the pound will be in the 57-63 range (assuming that GB doesn't have another major hiccup).

Dollar at 40 and pound at 75.....back to what it used to be....nothing wrong with that;)

If the Dollar goes back to 40 the pound will be in the 57-63 range (assuming that GB doesn't have another major hiccup).

...and pigs might fly!

Dollar at 40 and pound at 75.....back to what it used to be....nothing wrong with that;)

If the Dollar goes back to 40 the pound will be in the 57-63 range (assuming that GB doesn't have another major hiccup).

...and pigs might fly!

You had better get that camera dusted off there Chiang Mai, I'd hate to think that you miss a good snapshot of those flying piggies Don't worry though you have plenty of time, the move in U.S. interest rates will be a gradual one over the next 12 months or so, however after that the move will be much more pronounced, much to the chagin of the U.S. multinationals and the U.S. government as a larger and larger percentage of the U.S. GNP is eaten up by service on the debt

Dollar at 40 and pound at 75.....back to what it used to be....nothing wrong with that;)

If the Dollar goes back to 40 the pound will be in the 57-63 range (assuming that GB doesn't have another major hiccup).

...and pigs might fly!

You had better get that camera dusted off there Chiang Mai, I'd hate to think that you miss a good snapshot of those flying piggies Don't worry though you have plenty of time, the move in U.S. interest rates will be a gradual one over the next 12 months or so, however after that the move will be much more pronounced, much to the chagin of the U.S. multinationals and the U.S. government as a larger and larger percentage of the U.S. GNP is eaten up by service on the debt

Your words have been recorded for posteriety and can be recalled at a moments notice, my camera is in its case, waiting - I note however that I have plenty of time and I read that to mean that I have plleeeennnnntttttyyyyyyy of time

Sadly, all this movement of money and recessionary fallout seems to be perfectly timed in favour of the Shinwatra govt. He's always been on the lucky end of the economic growth here, and the only time it went flat in the last decade (2009 recession) was when he was out of power briefly, the last 18 months have seen false boosts here from this dollar movement, that is now about to change. And with the rice subsidy debt and other borrowing, he might be on the cusp of a huge wake up call. Poor Yingluck, it will be on her watch and she'll be out of her depth to deal with it.

Really?

Doesn't Thailand have some of the largest foreign currency reserves in the world?

Isn't the Thai rice debt in Thai baht?

If so, wouldn't the valuation issue work in Thailand's favour as the foreign reserves long argued to be too high could be exchanged to Thai baht and then used to service that Thai denominated debt.

The scenario you claim is a negative, is actually a positive.

Sadly, all this movement of money and recessionary fallout seems to be perfectly timed in favour of the Shinwatra govt. He's always been on the lucky end of the economic growth here, and the only time it went flat in the last decade (2009 recession) was when he was out of power briefly, the last 18 months have seen false boosts here from this dollar movement, that is now about to change. And with the rice subsidy debt and other borrowing, he might be on the cusp of a huge wake up call. Poor Yingluck, it will be on her watch and she'll be out of her depth to deal with it.

Really?

Doesn't Thailand have some of the largest foreign currency reserves in the world?

Isn't the Thai rice debt in Thai baht?

If so, wouldn't the valuation issue work in Thailand's favour as the foreign reserves long argued to be too high could be exchanged to Thai baht and then used to service that Thai denominated debt.

The scenario you claim is a negative, is actually a positive.

How rude of you GK to destroy the poor mans post with fact, you should be ashamed.

Sadly, all this movement of money and recessionary fallout seems to be perfectly timed in favour of the Shinwatra govt. He's always been on the lucky end of the economic growth here, and the only time it went flat in the last decade (2009 recession) was when he was out of power briefly, the last 18 months have seen false boosts here from this dollar movement, that is now about to change. And with the rice subsidy debt and other borrowing, he might be on the cusp of a huge wake up call. Poor Yingluck, it will be on her watch and she'll be out of her depth to deal with it.

Excuse my limited understanding of all things financial, but isn't a drop in Baht value a very good thing for the Yingluck administration at this point? It devaluates the rice pledging debts, AND gives them a better chance to sell off their overpriced rice on foreign markets.

And makes imports more expensive, including oil and fuels inflation. But don't get too excited, that supposed drop in the Baht is some way off and may well never happen. One of the big differences between today and 1997 is that the BOT has USD 172 billion in foriegn currency reserves, that's more than the UK or the US and it isn't spending any of it defending its currency!

At the moment, no.

But what if the best and brightest start panicking?

Indeed. There are an awful lot of USD sloshing around in the market. Brazil has set aside 80bn to defend the real.

Sadly, all this movement of money and recessionary fallout seems to be perfectly timed in favour of the Shinwatra govt. He's always been on the lucky end of the economic growth here, and the only time it went flat in the last decade (2009 recession) was when he was out of power briefly, the last 18 months have seen false boosts here from this dollar movement, that is now about to change. And with the rice subsidy debt and other borrowing, he might be on the cusp of a huge wake up call. Poor Yingluck, it will be on her watch and she'll be out of her depth to deal with it.

Excuse my limited understanding of all things financial, but isn't a drop in Baht value a very good thing for the Yingluck administration at this point? It devaluates the rice pledging debts, AND gives them a better chance to sell off their overpriced rice on foreign markets.

And makes imports more expensive, including oil and fuels inflation. But don't get too excited, that supposed drop in the Baht is some way off and may well never happen. One of the big differences between today and 1997 is that the BOT has USD 172 billion in foriegn currency reserves, that's more than the UK or the US and it isn't spending any of it defending its currency!

At the moment, no.

But what if the best and brightest start panicking?

On which side?

The world's financial community who analyse where to put their money with their PhDs and their super computer or kittirat?

Well, it's not much of a contest I think.

ah all those experts

making big bucks

but none can forsee / predict the big dips that we seem to get

so a lot of money came into thailand and made our euro / pound 20% less worth in a few weeks/months time

living here with no assests or real estate in my home country, sold everything because my family is here, i sure lost a lot of money converting euros into baht... just a few months too late, when we were out of the country