Thai Finance Minister Draws A Line On Baht Strength

[Jai Dee]

Thai finance minister draws a line on baht strength

BANGKOK, Dec 21 (Reuters) - Thailand does not want the baht to strengthen beyond 35 to the dollar because of the psychological impact on the country's exporters, Finance Minister Pridiyathorn Devakula said on Thursday.

"The psychological barrier is 35," Pridiyathorn told Reuters, three days after the Bank of Thailand's shock announcement of restrictions on short-term capital inflows to stem what at that point was a 16 percent rise in the currency this year.

"We don't want it to break through that," he said. "If you break 35, you see 34, you can also see 33 and 32."

Pridiyathorn, the central bank chief until appointed finance minister after a Sept. 19 military coup, said he was happy with the baht's retreat to around 36.5 per dollar on Thursday from Monday's 9-1/2-year high of 35.06.

He did not foresee the need for further action.

"You can see clearly this is quite enough," he said, adding that Thailand's target was to "be on the same level of appreciation" as other currencies in the region.

The currency measures, which triggered a 15 percent plunge in the Bangkok stock market on Tuesday before they were rescinded for equity investments, were only temporary, he said in a telephone interview.

Despite fears about a loss of competitiveness due to the baht's surge against a weakening dollar -- and against the Chinese yuan -- exports grew 20.7 percent in November from the same month a year earlier, data showed on Thursday.

Commerce Minister Krirkkrai Jirapaet told reporters that exports, which in a full year are equivalent to 60 percent of Thailand's gross domestic product, had grown 16-17 percent in the first 11 months of the year.

Pridiyathorn declined to comment on the baht's gains against the Chinese currency, which policy makers in the United States argue Beijing keeps artificially low to make its exports cheap.

Earlier this month, the Commerce Ministry projected Thai export growth of 10-12 percent in 2007, compared to the 16 percent estimated for 2006, citing an expected economic slow-down in major trading partners, such as the United States.

NOT A FLIP-FLOP

Despite Tuesday's record stock market sell-off, which wiped $23 billion off Asia's worst-performing bourse this year, army-appointed Prime Minister Surayud Chulanont stood by the finance minister and his successor at the Bank of Thailand (BoT).

"If the baht rose much higher, it would have affected the country's economy," Surayud told reporters. "It's not a flip-flop policy. We have a solid policy, which we had to adopt because we don't want to see speculation in the baht."

"The BoT and the Minister of Finance cooperated well in their actions as you can see from the revival in the stock market after we eased the policy," he said.

The main index <SET> closed up 11 percent on Wednesday as domestic investors rushed in to scoop up stock sold by foreigners, but it was still well below its levels before the BoT's currency move.

Foreigners sold Thai shares worth $700 million on Tuesday and another $80 million on Wednesday. At the midday break on Thursday, the main index <SET> was down 2.3 percent.

Source: Reuters - 21 December 2006

[astral]

"You can see clearly this is quite enough," he said, adding that Thailand's target was to "be on the same level of appreciation" as other currencies in the region.

Well that is the case.

The Malaysian Ringit stands at 3.549 to the US$. Courtesy of Onanda.

What is he fretting about?

[Scott]

"35 is the psychological barrier"-- this is one guy I wouldn't listen to when it comes to understanding the psychology of anything!

[Old Man River]

"35 is the psychological barrier"-- this is one guy I wouldn't listen to when it comes to understanding the psychology of anything!

While 35 is a psychological barrier, your personal comment against MR Pridiyathorn has me wondering what he ever did to you. Do you know him? Why would you make such a personal comment against him?

[rainman]

My psychological barrier broke when it dropped from 40.00 to 39.99

[PeaceBlondie]

Perhaps the finance minister (and perhaps his successor at the BOT, Dr. Tarisa) means that for the present leadership of Thailand, having the baht fall below 35 would have made them go crazy-baaa.

[brazil]

its all called putting into place sustainable economy against free market.

these people are just out of touch with the world has it stands today, which is a real worry for thai people

[Old Man River]

these people are just out of touch with the world has it stands today, which is a real worry for thai people

Well, since you are in touch, when the speculators come knocking on the door next time what would you do?

[PeaceBlondie]

To their credit, the finance minister and the BOT director have a duty to protect Thailand from the greedy behavior of the short term speculators. However, Tuesday was a tough lesson to learn: that Thailand is a guppy in a shark tank.

[Old Man River]

To their credit, the finance minister and the BOT director have a duty to protect Thailand from the greedy behavior of the short term speculators. However, Tuesday was a tough lesson to learn: that Thailand is a guppy in a shark tank.

A lot of lessons as to what not to do, but no lessons to be learned as to what to do. There is a long line of people finding fault, but a short (almost non existant) line of people with suggestions.

I would have lowered interest rates to weaken the THB as suggested by Dr. Virabongse. The BOT didn't think this would help much and perhaps they are right, but to me it would have made sense to try it first.

[brazil]

i am sure the next 12 months for the thai economy will very interesting indeed.

tuesday was economic hari kari

the same exporters they look to protect from the baht in the short term will now struggle to obtain finance in the long term for their debt restruturing, stock options to build plant, factories to make them all more competitive against the vietnamese and chinese.

the very same money they want to stop, is the every same money which has financed a large chunk of the economy from building roads to airports, bridges, mass comunication projects, transport projects, debt restructuring.

over the next 3-6 months 20 - 25 billion dollars will leave thailand and will migrate to hong kong, korea and india. there is now way that the fund managers will allow themselves to be exposed again in the future. their exposure will dilute by half, and to avoid any panic selling again on the markets they will play a cat and mouse game with the market to get their money out of the system.

this will still leave 20-25 billion dollars in the system, but will strain the economic progress of thailand for many years to come.

was it really worth the short term gain on the baht?

it is a very loud and clear statement of intent by thailand has to how it now sees itself in the global community.

Edited December 22, 2006 by brazil

[Old Man River]

i am sure the next 12 months for the thai economy will very interesting indeed.

tuesday was economic hari kari

the same exporters they look to protect from the baht in the short term will now struggle to obtain finace in the long term for their debt restruturing, finance for stock options to build plant, factories to make them all more competitive against the vietnamese and chinese.

the very same money they want to stop, is the every same money which has finaced a large chunk of the economy from building roads to airports, bridges, mass comunication projects, transport projects, debt restructuring.

it is a very loud and clear statement of intent by thailand has to how now it sees itself in the global community.

While it may look that way, it is not the case. This is a country that was attacked and beaten into bankruptcy by speculators. By floating the THB, this was not supposed to happen again, but speculators have no interests other than money and were attacking again. It was becoming obvious that the speculators were going to continue causing the THB to appreciate, taking profits periodically, until Thailand's exports collapsed. Then the speculators would move on to another country. Really, I don't know what the answer is, and apparently, nobody else does either.

[pnustedt]

The finance minister had several options open to him other than the one he took. He could have reduced interest rates, bought foreign currency using substantial currency reserves Thailand holds and bought US$.

It is a normal phenomina that developing countries, when their industry grows, achieve balance of payments surpluses and attract further investment capital, this in turn can make them less price competitive. In the longer term Thailand needs to learn how to cope with this by adding value to their exports to maintain their competitive edge.

Thailand cannot expect to be a player in the international market if it interrupts the flow of capital in that market.

[meom]

A lot of lessons as to what not to do, but no lessons to be learned as to what to do. There is a long line of people finding fault, but a short (almost non existant) line of people with suggestions.

I would have lowered interest rates to weaken the THB as suggested by Dr. Virabongse. The BOT didn't think this would help much and perhaps they are right, but to me it would have made sense to try it first.

Any idea how much the price of oil impacts exporters? I would have thought with a stronger baht oil imports would be cheaper which might have a positive effect with cheaper fuel costs etc.

[brazil]

i am sure the next 12 months for the thai economy will very interesting indeed.

tuesday was economic hari kari

the same exporters they look to protect from the baht in the short term will now struggle to obtain finace in the long term for their debt restruturing, finance for stock options to build plant, factories to make them all more competitive against the vietnamese and chinese.

the very same money they want to stop, is the every same money which has finaced a large chunk of the economy from building roads to airports, bridges, mass comunication projects, transport projects, debt restructuring.

it is a very loud and clear statement of intent by thailand has to how now it sees itself in the global community.

While it may look that way, it is not the case. This is a country that was attacked and beaten into bankruptcy by speculators. By floating the THB, this was not supposed to happen again, but speculators have no interests other than money and were attacking again. It was becoming obvious that the speculators were going to continue causing the THB to appreciate, taking profits periodically, until Thailand's exports collapsed. Then the speculators would move on to another country. Really, I don't know what the answer is, and apparently, nobody else does either.

no body is questioning the position of thailand on currency speculation after the 1997 crash.

you are asking in many of your threads that people should give ideas not shoot the decision down.

please remember one thing!

the finance minister has openly admitted that the decision on currency controls was not discussed outside of the bot which raises so many alarm bells as to why they chose not to seek further clarification on the end results of their actions before they took the final decision.

if the finance ministry took your stance on asking for further ideas, then maybe tuesday could have been avoided.

it is remarkable how the bot did not seek further ideas from other such sources in the thai financial community

the present finance minister has never acted before in such a way!

which leaves the question on "who " exactly pushed the idea through

in any case

the damage is already done

Edited December 22, 2006 by brazil