The Currency Crisis: Solutions Sought

[Jai Dee]

Managers from 100 companies to help find ways to solve currency crisis

The Public Private Partnership, or P3, will invite managers from 100 companies to a seminar to help brainstorm ideas to solve the appreciation of the Thai baht. The seminar will be held on January 18th, 2007.

Federation of Thai Industries (FTI) chairman Santi Wilatsakdanond (สันติ วิลาสศักดานนท์) said P3 consists of the FTI, the Thai Chamber of Commerce, and the Association of Thai Bankers. He said the seminar will help the country prepare for the continual strengthening of Thai baht next year, and the resolution of this seminar will be delivered to the government for further consideration.

Mr. Santi said the financial curb enforced by the Bank of Thailand on December 19th is considered a good sign because the government attempted to stabilize the Thai currency. However he said other measures could be implemented as well, such as measures on tax and interest rate. He said the seminar on January 18th will also discuss these alternatives.

Source: Thai National News Bureau Public Relations Department - 25 December 2006

[astral]

Following the government faux pas, market forces seem to have done the job for them.

26th December 1 US Dollar = 36.50476 Thai Baht. Courtesy of Oanda

[Jai Dee]

Thai currency controls may last 6 months

Currency control measures that rattled the stock market in Thailand could remain in place for at least six months, the central bank governor said Tuesday.

Bank of Thailand Gov. Tarisa Watanagse told The Associated Press that last week's measures -- which restrict foreign capital inflows into the bond and commercial paper markets -- must remain in place for around three to six months to ensure they actually curb the baht's appreciation.

"Once the baht is moving in line with regional currencies, the measures will become unnecessary," Tarisa told the AP.

Thai shares plunged nearly 15 percent Dec. 19 after the central bank announced regulations restricting foreign capital inflows in an effort to curb the baht's appreciation.

Authorities quickly lifted the controls on foreign stock investment but retained the curbs on bonds and other debt instruments, prompting the benchmark index to bounce back 11 percent Wednesday. The market has largely changed little since then.

On Tuesday, Thai stocks edged higher in morning trading. The Stock Exchange of Thailand benchmark SET index rose 0.1 percent to 684.71 with blue chip bank and retail stocks leading the way.

Since hitting a nine-year high of 35.09 per dollar on Monday, the baht has strengthened to 36.37 Tuesday, up from 36.43 on Monday.

Tarisa reiterated that the measures so far have effective at "slowing down the volatility of the baht and are beneficial to the export sector, which is an economic driver."

Source: Associated Press - 26 December 2006

[Jai Dee]

Tarisa says capital control measures to stay 3-6 months: report

Bank of Thailand Governor Tarisa Watanagase said Tuesday that the austere capital control measures will have to remain in place for at least three to six months, AP Dow Jones reported.

Tarisa told Dow Jones Newswires in an exclusive interview Tuesday that exemptions won't be granted for investment in property funds or for loans between firms in Thailand and their offshore parent companies, and that the overall framework of the measures would stay in place for as long as necessary.

"There should be a time frame (for the 30% withholding on certain capital inflows) of at least three to six months. Once we put these measures, we need to be sure" that the problem with the baht has been resolved before they are revoked, Tarisa was quoted by AP Dow Jones as saying.

Source: The Nation - 26 December 2006

[Jai Dee]

Industries Sentiment Index falls continuously due to strong baht

Thai Industries Sentiment Index (TISI)has been reportedly dropping due to the continuous strengthening of the Thai baht currency and flood situation.

Mr. Adisak Rohitasun (อดิศักดิ์ โรหิตะศุน), Vice President of the Federation of Thai Industries (FTI), said that according to a survey conducted, he said that TISI has dropped from 95.3 to 91, indicating waning confidence amongst people working in the industrial sector. The factor leading to the slight drop is due to the flood situation and the higher production cost as well as the strengthening of baht currency. He said that last month the baht currency had surged by 2.2 percent when compared to November and by 8.4 percent when compared to January.

Entreprenuers have requested the government to quickly solve the current baht crisis. The government has also been asked to support capital and the reduction of utility costs, to help boost the growth of industrial sector.

Source: Thai National News Bureau Public Relations Department - 27 December 2006

[Jai Dee]

Baht rise costs industrial sector Bt100bn in revenue from exports

BANGKOK, Dec 27 (TNA) –The Thai industrial sector has lost revenue of around 100 billion baht from exports since the baht appreciated early this year, according to the Federation of Thai Industries.

FTI’s Chairman Santi Vilassakdanont said the baht had strengthened continuously to around 36 to the US dollar now from 41 to dollar early this year.

FTI estimated the continued appreciation of the currency had made the industrial sector lose revenue of more than 100 billion baht from what it should earn from the exports.

It is expected final figures on impacts of the baht rise would be released around two weeks after the New Year.

Now, FTI is in a process of submitting questionnaires to members of the 35 industrial clubs nationwide to ask how much they have been affected by the baht rise by around 14 per cent in terms of revenue.

He said FTI viewed an appropriate level the baht should stay at present is around 37-38 to the dollar. However, it must take into account whether currencies of trade rivals had appreciated less than that of the baht or not.

For instance, the Chinese yuan has now strengthened less than the baht rise.

Mr. Santi conceded not all of operators in the industrial sector had suffered from the baht appreciation.

Most sufferers are those who count on local raw materials for production.

They include operators in food and textile industries. Not only had they experienced higher costs of production, they had to compete with key rivals such as China and Vietnam.

Industrial operators who do not suffer from the baht appreciation are those who import raw materials for production. They include operators in electronics and electrical appliance industries.

Source: TNA - 27 December 2006

[Jai Dee]

Thailand's central bank denies it has plan to end capital control measure

BANGKOK, Dec 27 (TNA) – Bank of Thailand’s Governor Tarisa Watanagase on Tuesday denied rumours the central bank was mulling scrapping a 30 per cent reserve requirement on short-term capital inflows issued recently to stem the bath speculation.

She said the bank had no plan to end the capital control measure for now because it had just imposed it.

The bank would monitor the implementation of the measure for at least 3-6 months so that it could see how it works or not.

“We never mention we are going to scrap the measure in 3 or 6 months. We need to monitor the outcome of the measure first,’’ she said.

To prevent the baht from appreciating more than it should be, the central bank on December 18 decided to impose a temporary reserve requirement for short-term capital inflows.

Under the measure, Thailand's financial institutions are required to withhold 30 per cent of foreign currencies bought or exchanged against the baht, except those related to trade in goods and services, or repatriation of investments abroad by residents.

The measure had put the Stock Exchange of Thailand’s index in tatters on the next day, causing the bank to ease the requirement by exempting foreign currencies brought into the country for stock investment and foreign direct investment.

Source: TNA - 27 December 2006

[Jai Dee]

TDRI calls for cancellation of capital control measures

Thailand Development Research Institute suggests the Bank of Thailand scrap the draconian 30-percent capital reserve requirement immediately and proposes a less harsh measure to curb the baht speculation.

TDRI proposed the Bank of Thailand reduce the requirement ratio from 30 per cent and start with a low level probably 2 per cent. And the requirement should be imposed in the entire capital market, which means the stock market should come under the measure as well.

Chalongphob Sussangkarn, president of TDRI, said that the 30 per cent requirement would destroy the bond market in the long run.

He would discuss with Prime Minister Surayud Chulanont tomorrow on this issue and would propose the BOT the TDRI proposal.

Source: The Nation - 27 December 2006

[ozymandious]

Umm Ok, so I'm no Economist or any thing but can't they just Print more money and have more bills in circulation and inflate the Baht so the value drops??

[backflip]

"I'm no Economist or any thing but can't they just Print more money and have more bills in circulation and inflate the Baht so the value drops??"

You answered your own question. Despite what mom and dad told you, printing more money does not cause inflation. If you were an economist, you'd know that.

[LivinLOS]

Increasing the money supply all else being equal does cause inflation.. Its keeping all else equal thats the problem

They could lower interest rates to make the baht less apealing, they could inflate away at M3, they could try jawboning the currency down, theres a few tactics..

[pkrv]

There could of course be no simpler answer to this. Just follow Singapore and China's lead. Fix the Thai Baht against a basket of currencies. A provisional setting would be to value the THB at 75 to GBP and allow things to move on from there.

[pkrv]

Sorry forgot to add notification to subject

[malcolminthemiddle]

There could of course be no simpler answer to this. Just follow Singapore and China's lead. Fix the Thai Baht against a basket of currencies. A provisional setting would be to value the THB at 75 to GBP and allow things to move on from there.

China and Singapore have the massive foreign currency reserves needed to peg their currencies.

The question is does Thailand (present and future)?

[astral]

Perhaps they should stop worshipping the Almighty US Dollar (as it sinks onto the sunset)

and look at some of the other major currencies and markets of the world.

Then they might be a little less paranoid.

It is not the Baht that is appreciating, it is the US$ that is depreciating against just about every world currency.

If the Baht did not appreciate I would be VERY worried.

Here are some figures for the last 12 months. (courtesy of Oanda)

Date ----- Euro -- UK Pound

12/2005 48.60 71.16

03/2006 46.89 68.05

06/2006 48.44 70.15

09/2006 47.67 71.06

Today.. 47.30 70.50

This show the Baht at its strongest last March.

Quite a different picture.

[Chang_paarp]

They could ask someone with international experience in monetary policy. This would mean talking to a non-thai, that in itself may cause problems.

The hard part will be accepting the advice and following the plan.

[Old Man River]

There could of course be no simpler answer to this. Just follow Singapore and China's lead. Fix the Thai Baht against a basket of currencies. A provisional setting would be to value the THB at 75 to GBP and allow things to move on from there.

China and Singapore have the massive foreign currency reserves needed to peg their currencies.

The question is does Thailand (present and future)?

Malcominthemiddle, that is exactly correct. Pkrv what you suggest seems to make sense. However, the THB was pegged to a basket of currencies that was primarily USD prior to July 1997. Speculators attacked the THB, shorting it, to the point that the country went bankrupt using its reserves trying to support the THB. If speculators were able to mount an attack against Singapore with more money than Singapore had, then they could break that pegged currency. However, speculators won't attack Singapore when there are easier countries in SEA to attack. Dr. Tarisa, BOT's Governor, has wanted for countries in SEA to band together to support each other if attacked, but other countries don't seem interested. The bottom line is pegging the currency (fixing it) does not work for Thailand.

[Old Man River]

TDRI calls for cancellation of capital control measures

Thailand Development Research Institute suggests the Bank of Thailand scrap the draconian 30-percent capital reserve requirement immediately and proposes a less harsh measure to curb the baht speculation.

TDRI proposed the Bank of Thailand reduce the requirement ratio from 30 per cent and start with a low level probably 2 per cent. And the requirement should be imposed in the entire capital market, which means the stock market should come under the measure as well.

Chalongphob Sussangkarn, president of TDRI, said that the 30 per cent requirement would destroy the bond market in the long run.

He would discuss with Prime Minister Surayud Chulanont tomorrow on this issue and would propose the BOT the TDRI proposal.

Source: The Nation - 27 December 2006

I have a lot of respect for the people at TDRI. I just wish they could have been more proactive, given they knew the situation prior to the BOT's actions. Instead of waiting for the BOT to act and say after the fact that their actions would destroy the bond market, being an independent think-tank, they should have been able to advise the BOT prior to the actions being taken. After the fact adds a lot less value.

[Aujuba]

What about offering the opportunity for regular Thais to keep their savings in US dollars in their local Thai banks? Only the wealthiest Thais are in on international currencies at the moment.

[Jai Dee]

Thailand to review FX measures in mid-Jan

The Bank of Thailand will monitor trading in the baht and review the impact of its tough capital control measures in mid-January, Bank of Thailand Governor Tarisa Watanagase said on Friday.

"Let it settle for a moment and then we will review what needs to be added or reduced," Tarisa told Thai radio station FM 98. "It will be to adjust the dosage of the drug, not to change the direction."

On Tuesday, Tarisa had said the central bank would spend at least three to six months studying the impact of the controls, which she has said repeatedly are only temporary.

In her latest comments, Tarisa said that sharp gains in the baht since Thursday were partly the result of a two-tier market, onshore and offshore, that had given market participants room to arbitrage between the two.

The baht was trading offshore at around 35.50 per dollar at 0203 GMT on Friday but a trader said it was quoted onshore at 36.10 per dollar.

Based on offshore quotes, the currency has risen 15.8 percent this year against the dollar.

Tarisa described the baht's renewed gains as an aberration of a two-tier market amid thin trading in the last week of 2006.

"There is now a two-tier market, meaning it is possible that there are efforts to exploit this. The offshore baht rate seems to have affected the onshore rate amid the current thin market," the governor said.

"But this situation is in line with what we have expected as a result of the measures announced last week. Bringing in funds now involves a 30 percent increased cost. We don't want to see too much foreign exchange volatility," she said.

The Bank of Thailand announced tough capital controls on Dec. 19 to restrain Asia's fastest-rising currency, but the move alarmed foreign investors and triggered a partial policy U-turn after a massive stock sell-off.

The Thai bourse plunged about 15 percent after the central bank imposed the measures aimed at curbing speculation in the baht.

The central bank said it had to act before the baht did serious damage to the country's exports, which are equivalent to 60 percent of Thailand's gross domestic product.

Source: Reuters - 29 December 2006

[aaaaaa]

seems pretty much like what Mahathir did in Malaysia back in 97-98. and only relatively recently Malaysia allowed Ringit trade abroad. I remember trying to change some RM into Thai baht here in Bangkok in June '99 - was told it is impossible anywhere except border.

[Jai Dee]

Thai Baht Has Largest Annual Gain in Eight

Dec. 30 (Bloomberg) -- The Thai baht had the biggest annual gain in eight as a central bank report showed the current-account surplus rose to a seven-year high in November.

The currency advanced almost 16 percent this year on higher overseas purchases of the nation's exports such as computer parts, cars and rice, the best performance since the country emerged from the 1997-1998 Asian financial crisis. A surplus indicates more money is flowing into Thailand than is going out.

"Economic conditions in the country are good and strong exports also increase demand for the currency,'' said Daisuke Uno, chief strategist in Tokyo at the treasury unit of Sumitomo Mitsui Banking Corp. "That puts pressure on the baht to strengthen.''

The baht, which topped the 15 Asia-Pacific currencies tracked by Bloomberg this year, was at 35.45 against the dollar at 5 p.m. in Bangkok yesterday, according to data compiled by Bloomberg. It may trade between 35.50 and 36.50 in a month, Uno said. The gains prompted the central bank this month to bring in new controls aimed at curbing the rally.

Thailand's current-account surplus reached $1.51 billion from $856 million in October, the Bank of Thailand said in a statement in Bangkok yesterday. That was the highest since January 2000. Economists surveyed by Bloomberg News had forecast a $1.88 billion surplus.

Prospects for a surge in tourists visiting Thailand during the November-January period may increase the current-account surplus, said Nizam Idris, a currency strategist at UBS AG in Singapore.

"It's likely to mean the current account will be quite strong, hence underpinning the baht,'' he said.

Thailand expects a record 13.8 million in tourist arrivals this year and forecasts a rise to 14.8 million next, the Tourism Authority of Thailand said on Nov. 9.

Source: Bloomberg - 30 December 2006