Apple Inc's sheen lights the way for Thailand

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OVERDRIVE
Apple Inc's sheen lights the way for Thailand
Thanong Khanthong

BANGKOK: -- The Bank of Thailand on Wednesday sprang a surprise by cutting its rate by 25 basis points to 1.75 per cent. In doing so it joined more than 20 central banks worldwide in recent rate cuts aimed at spurring growth. But a consequence of this monetary easing is a weakening of currencies in order to boost exports. Hence, we are in the middle of a currency war.

Prior to the rate cut, there were three schools of thought in Thailand. The first school, supported by conservatives in the central bank, preferred to keep the rate unchanged at 2.0 per cent because the interest rate structure had already been accommodative to the economic recovery. The second school, embraced by representatives from the private sector in the central bank, desired a rate cut in view of the weak recovery, particularly in the export sector and government spending. Despite the powers it wields under martial law, the Prayut government has so far failed miserably to push public sector investment projects through barriers of bureaucratic red tape. The third school, represented by the business sector including the Federation of Thai Industries, wanted shock therapy in the form of a 50-basis-point cut in order to jumpstart the economy. At the end of the day, however, the central bank voted for the 25-point cut, which sent out a signal that, overall, it was concerned over the pace of the recovery.

The question now is whether there will be further room to cut the interest rate. The answer depends on how the banking authorities look at the economic problems. The negative inflation rate so far has been caused largely by externals, including sharp falls in the prices of oil and commodities. Disbursement of government spending continues to fall behind schedule. Domestic consumption is being marred by a high level of household debt, which is approaching 90 per cent of gross domestic product. Exports are weak. And, finally, private investment is not a reliable engine of growth.

As we can see, Thailand is facing a deep-seated structural problem. Our household debt needs to be de-leveraged, not spurred upwards to encourage more consumption. The export sector can no longer act as a "white knight" to salvage the economy as it did in the past. There are three main reasons.

First, global growth has been disappointing. The major markets of the US, Europe and Japan have less purchasing power to buy manufactured goods from export-led nations like Thailand.

Second, commodity prices are on a downward path. Thailand still depends on commodity exports, particularly of rice and rubber, to support the core populace whose livelihoods depend on agriculture. The fall in commodity prices means there is less income coming into the country.

Third, the signs are that Thai exports may have lost their competitiveness following poor performance over the past couple of years. If that trend continues, the deteriorating competitiveness would be confirmed. And weakening the baht might not be the solution to reversing that trend. Look at Apple products, most of which are very expensive. Still, consumers all over the world queue up to purchase Apple devices because of their exceptional quality, making it the largest company on the US stock market, with a capitalisation of $770 billion. Over the next three years, Apple aims to surpass the $1 trillion mark, which would make it three times larger than the Thai economy.

Thai companies still sit on cash mountains and have no problem raising funds for business expansion. Investment in quality will be the key to Thai growth, while the public sector will have to cut costs or overheads and boost investment. That's the way to go, at least in the immediate term.

Source: http://www.nationmultimedia.com/opinion/Apple-Incs-sheen-lights-the-way-for-Thailand-30255879.html

-- The Nation 2015-03-13

[smedly]

devalue the baht and get on with it - normal economics don't work in 3rd world countries and pretending they do doesn't help at all - the rate drop this week actually had the complete opposite impact to what they wanted - go figure

[96tehtarp]

"Hence, we are in the middle of a currency war." - or a race to the bottom.

[zaphod reborn]

The baht has been artificially inflated for over a decade. Some devaluation is necessary to restore natural market value.