Exports Not Adversely Affected By Stronger Baht, Says Bot

[george]

Exports not adversely affected by stronger baht, says BOT

BANGKOK: – Bank of Thailand’s Governor Tarisa Watanagase on Thursday viewed the strengthening of the baht at a current level had not adversely affected exports, but conceded the local currency tended to appreciate since the US dollar is expected to continue to weaken.

Speaking at a seminar on “Economic Direction for 2007,” she said the economy is projected to grow 4.5-5 per cent this year and 4.5-5.5 per cent next year because fuel prices had begun to decline, a political situation had begun to stabilise, and a budget for 2007 is set to be disbursed sooner than anticipated.

However, the Thai economic growth might be affected by an expected slowdown of the global economy.

She said an inflation rate next year was not of concern given that a core inflation rate this year is expected to stay at around 2-2.5 per cent.

On the baht movement, Mrs. Tarisa said, the currency had appreciated by 12.80 per cent since early this year. It is the strongest in the region in two years.

Coping with the currency exchange volatility and economic woes needed to count on a long-term perspective, she said, adding the strengthening of the baht stemmed partly from the weakening of the US dollar due to economic problems in the United States.

While Asian countries enjoyed combined trade surpluses of US$421.7 billion, the US experienced the trade deficit of up to US$798.4 billion. It resulted in a continued capital inflow into Asia.

In the first 9 months of this year, Thailand enjoyed a current account surplus of US$2.8 billion against a deficit of US$3.7 billion in the same period last year.

Although the baht appreciation would affect exports, the growth remained sound since economies of Thailand’s trading partners continued to expand satisfactorily.

To protect themselves from the currency exchange fluctuation, she suggested the private sector give an importance to the currency risk management and improve their production efficiency.

--TNA 2006-11-23

[Heng]

I'd tend to disagree. Was just having a chat with one of my oompa lumpas...

Yeah, no adverse effects... except 3 million in revenues is now called 2.73 million in revenues. Now I might only be simple merchant with a medium term event horizon, but I'd call that adverse.

[pap]

I'd tend to disagree. Was just having a chat with one of my oompa lumpas...

Yeah, no adverse effects... except 3 million in revenues is now called 2.73 million in revenues. Now I might only be simple merchant with a medium term event horizon, but I'd call that adverse.

Depends which currencies you compare it to as to how much it affects people.

[Richard Hall]

On the surface just and just looking at the turnover it may appear like there is not much like a negative effect but eventually not turnover but profit is the key aspect in business and indicates whether a company/economy is actually successful or not.

The global market is more competitive than ever and there is immense price pressure. Healthy mark-ups are very hard to realize and quite often the decision has to be made to carry out a deal for the sake of the turnover to keep things going even under the line the profit is just half a notch over cost.

Turnover is nothing but operative result is all what counts in business because latter is taking the look under the hood of an apparently shiney car.

Generals and economists just tend to look at the green battlefield from the top of the hill but shoot if you've gotta walk on it its a totally different situation.

Just could't land a deal in real life because of the weak buck. Well we could have but basically working for free is neither fun nor does it any good to the company.

Cheers,

Richard

[backflip]

"Was just having a chat with one of my oompa lumpas..."

You should have talked to the other oompa lumpa, the smart one.

[chuchok]

I'd tend to disagree. Was just having a chat with one of my oompa lumpas...

Yeah, no adverse effects... except 3 million in revenues is now called 2.73 million in revenues. Now I might only be simple merchant with a medium term event horizon, but I'd call that adverse.

Depends which currencies you compare it to as to how much it affects people.

Well, considering that the USD is the most common currency used in trading, I would say that Hengs post is close to the mark.

[Heng]

This was the one that can use a calculator.

Seriously though, revenues down for this particular export unit (orchids + aquatic plants): profits not down if we're still going by pre-'97 standards/margins; but indeed down if we are using post '97 margin calculations that include forex profit. Costs still thankfully stable.

[Heng]

And yes, these are USD revenues, Chuchok. My cousin who imports a good % of components (in USD from Taiwan and China) for his Saag brand computer/home/car speakers is taking an even bigger cut into his margins as he gets hit on the import side as well as on the export side.

Edited November 26, 2006 by Heng

[PeaceBlondie]

On the baht movement, Mrs. Tarisa said, the currency had appreciated by 12.80 per cent since early this year. It is the strongest in the region in two years.

So, if your product's sales are denominated in dollars, you've just lost 12.80% of your gross revenue (in baht), all other things being constant. How many net profit calculations can absorb a loss in gross revenue that large? Or am I confused?

[thaihome]

For a US company doing business here with baht revenue reported as USD in corp books, this is making our local entity's revenue higher

[Nam Kao]

US Dollar heading for a mojor crisis soon, mark this post

[Heng]

On the baht movement, Mrs. Tarisa said, the currency had appreciated by 12.80 per cent since early this year. It is the strongest in the region in two years.

So, if your product's sales are denominated in dollars, you've just lost 12.80% of your gross revenue (in baht), all other things being constant. How many net profit calculations can absorb a loss in gross revenue that large? Or am I confused?

A lot of businesses can't. Some businesses can. A lot of exporters (for example those whose products/services don't have any imported inputs and whose local inputs costs have remained relatively low over time) have been operating with inflated forex profits since 1997. A return to '97 or return to 25 Baht to the dollar simply means the rose tinted glasses come off, and the regular sun glasses put back on.

And again, I'm not saying that will be for everyone. But IMO the Baht 'crashing up' to 25 doesn't mean the sky is falling by any means.

[pap]

US Dollar heading for a mojor crisis soon, mark this post

Depends on what you call a crisis. It definitely will continue down for the next few months against most currencies. It is projected to take between a 3 and 5% hit over the next year against the Euro. Probably a tad more against most Asian currencies.

With the amount of capital pouring into China these days and out of the US it will have to stabalize but if you have a choice bet on the Yuan floating more and getting stronger and the Hong Kong dollar to decide to release its peg to the dollar. If either happen and your a currency trader you would do very well.

I just assume invest in multinationals and let them figure it out though.

[Jai Dee]

Thai Oct exports seen strong despite baht rise

Annual exports growth seen strongest in 8 months

BANGKOK, Nov 27 (Reuters) - Thailand's exports are expected to have risen in October at their fastest annual pace in eight months, helping sustain healthy trade and current account surpluses despite the rise in the baht against the dollar.

Demand for year-end holidays has underpinned Thailand's exports growth, but analysts said this year's double-digit rise in the baht could start to crimp the country's trade in the months ahead.

The Bank of Thailand is scheduled to release a raft of data on Thursday covering October, including trade, manufacturing and money supply.

Inflation data for November is due to be released at 2.00 p.m. (0700 GMT) on Dec. 1.

A Reuters survey suggested October exports increased 20.5 percent from a year earlier, the fastest annual rise since February and accelerating from a 14.5 percent pace in September.

The exports would help keep the trade account in a healthy surplus of $687 million, down from a record $1.4 billion surplus in September. Thailand has produced a monthly trade deficit six times so far this year.

Analysts forecast the current account surplus would be generally steady in October at $1.10 billion from September's $1.18 billion but higher than any other month since December 2004.

Last week, preliminary customs-cleared trade data from the commerce ministry showed October exports of agricultural goods jumped 27 percent from a year earlier, electronics products surged 19.9 percent and electrical appliances rose 27.9 percent.

Economist David Cohen at Action Economics in Singapore said the impact on Thai exports of the baht's 12.8 percent increase against the dollar this year had been softened because other Asian currencies had also risen.

"The other regional currencies have been gaining recently too. The baht has been the best performer this year, but in the last few months, the dollar has been generally weaker," he said.

"Everybody has been holding his breath, but exports have held up pretty well through the first three quarters of 2006, not only for Thailand but for all the regional economies," he said.

BAHT STRENGTH

However, analysts believe export growth will ease, probably from November, after pre-Christmas shipments to western markets are completed allowing the baht to have more impact.

"Export growth is not likely to be sustained. We expect some slowdown to the low teens during the next several months," Thanomsri Fongarunrung of Phatra Securities said.

Chatchai Boonyarat, vice president of the board of trade, anticipated the baht would drag on exports growth.

"The impact would be evident in the first quarter of next year, when year-on-year growth of exports would be negligible or zero. Exporters would need to adjust by switching to other remaining competitive products," he said.

Source: Reuters - 27 November 2006

[pap]

On the baht movement, Mrs. Tarisa said, the currency had appreciated by 12.80 per cent since early this year. It is the strongest in the region in two years.

So, if your product's sales are denominated in dollars, you've just lost 12.80% of your gross revenue (in baht), all other things being constant. How many net profit calculations can absorb a loss in gross revenue that large? Or am I confused?

A lot of businesses can't. Some businesses can. A lot of exporters (for example those whose products/services don't have any imported inputs and whose local inputs costs have remained relatively low over time) have been operating with inflated forex profits since 1997. A return to '97 or return to 25 Baht to the dollar simply means the rose tinted glasses come off, and the regular sun glasses put back on.

And again, I'm not saying that will be for everyone. But IMO the Baht 'crashing up' to 25 doesn't mean the sky is falling by any means.

I would think this would not mean the sky is falling only if the US dollar tanks a relatively equal percentage to most other currencies and how quickly this change occurs. If it occurs over the course of 2 years than the damage would be absorbed. If it occurs during a significantly shorter term than it takes exports to adjust, they would not have time to find new markets in Europe or Asia.

This causes a capital flow crunch. This is what triggered the asian economic crisis but from a different perspective. It was due to the change in available capital in effect although what triggered that was conceptually different.

It is the speed of these changes that matters. If it occurs over time export economies can adjust. If the capital crunch occurs over night everyone goes down in flames.

I don't see another economic crisis coming but everyone is headed for a recession at some point within the next couple of years. And thats OK. Its natural. The first one to take it on the chin will be the US. It will drag eveyone else down with it. Probably not proportionally this time however.

[Old Man River]

I'd tend to disagree. Was just having a chat with one of my oompa lumpas...

Yeah, no adverse effects... except 3 million in revenues is now called 2.73 million in revenues. Now I might only be simple merchant with a medium term event horizon, but I'd call that adverse.

Her comments are relative as to how bad it is and how bad it could be. For sure it is cutting into margins. I don't know of any exporters that aren't complaining. However, it isn't to the point of bank defaults and hopefully it doesn't get to that point. From the BOT's perspective, Dr. Tarisa really doesn't have a whole lot of options. As discussed in previous threads, to weaken the THB they can lower interest rates and to mitigate hedging costs they can allow exporters to hold USD's longer. They tried a fixed USD/THB exchange rate and we all know where that led. Really, as long as the political situation is viewed stable and the USD is weakening, there is not much the BOT can do.