Calls grow louder for action on baht

[Flashermac]

Bangkok Post

11 September 2010

 

 

Business leaders have stepped up their calls for the government to make a greater effort to curb the impact of the strengthening baht, according to Payungsak Chartsutthipol, chairman of the Federation of Thai Industries (FTI).

 

The baht was trading yesterday at a 13-year high of 30.82/85 to the US dollar, compared with 33.15 baht in January.

 

The 7.6 per cent increase is the highest in the region behind the Malaysian ringgit.

 

[color:red]A US dollar bill now fetches less than 30 baht for the first time since 1997.[/color]

 

However, the impact is less pronounced in Malaysia because its economy is not as export-dependent as Thailand's, said Mr Payungsak.

 

"The stronger baht has both positive and negative sides," he said. "While it benefits the industries that have high import content and those needing to pay back loans, exporters face a reduction in competitiveness. Looking after the economy means taking care of every sector.

 

"We want the government to send signals that it will come and provide help."

 

[color:red]FTI vice-chairman Thanit Sorat said the Thai baht could reach 29.50 by the end of October if it gains another one per cent against major currencies per month.[/color]

 

This would have a more pronounced negative affect on exporters unless the Bank of Thailand has measures to curb the flow of money coming into the country.

 

Thailand's interest rates are high compared with those elsewhere in the region, which is encouraging the inflow of money to the country, said Mr Thanit.

 

He said gross domestic product (GDP) growth this year could be half a percentage point lower than forecast if the baht continues to rise.

 

Vallop Vitanakorn, vice-chairman of the Thai National Shippers Council, said the central bank should seek cooperation from commercial banks to provide packing-credit loans in both baht and dollars. Currently the loans are provided mostly in baht.

 

"Whenever the baht reaches 29 baht per dollar, that will be the crisis for the garment sector," said Mr Vallop.

 

The FTI has proposed six remedies for the export sector, starting with an explicit acknowledgement by the government that rises in export goods prices are reducing exporters' competitiveness against their rivals.

 

It said the central bank needed to intervene more in the currency market to stabilise the exchange rate so the gains are more in line with those of other regional currencies.

 

As well, the FTI said, both the government and the central bank should take immediate measures to prevent speculators from pursuing short-term profits.

 

It is also asking the Port Authority of Thailand to lower service fees for exporters for three months. Customs duties for exports should also be reduced.

 

The FTI is also proposing that the government allow exporters to pay time-charter rates for ships in foreign currency.

 

The heavy inflows of funds into Thailand reflect robust economic growth and relatively low valuations of local stocks, said Yunyong Thaicharoen, head the Capital Market Research Institute at the Stock Exchange of Thailand.

 

Capital inflows to the bond market have totalled $3 billion so far this year, in addition to nearly $600 million into the SET.

 

The trend reflects the interest rate differential between Thailand and other countries, particularly at a time when the US Federal Reserve has signalled there will be no increases in its benchmark rate for a long time because the recovery is so weak.

 

However, the baht's appreciation will lessen the central bank's need to increase interest rates to curb inflation in the future. Its Monetary Policy Committee has raised the short-term rate by a quarter percentage point each in two consecutive meetings to 1.75 per cent from 1.25 per cent in mid August.

 

"I don't think it is necessary to use strong measures right now. The inflows reflect the economy's fundamentals and a catch-up move [from an under-performing market in the first half of the year]," said Dr Yunyong.

 

The economic fundamentals now are different from those in 2006, when policymakers feared that only exports could save the economy after a coup shook investor confidence.

 

"The economy is in a better position to cope with the baht's strength than in 2006. Domestic demand has recovered satisfactorily and the economy has good momentum," he said.

 

 

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[Old Hippie]

So where is this crash so many said would happen ala 1997? Is the Bht backed up, inflated for national pride? or is it really that strong? I have read business is pulling out, seeking cheaper labor and safer/more stable governments...so which is it? backed up? or just a strong self sufficent currency? I know th USD sucks, so does the Euro and the Pound etc...why is Thailand doing so well...?

[Nervous God]

Interest rates play a strong factor as mentioned, plus countries not a basket case financially.

[Old Hippie]

????

 

[simie]

Unlike many western countries the Thais don't appear to have huge levels of sovereign debt. And even thought their economy appears to be doing well I think the strong baht must eventually have a negative effect on their key industries such as tourism?

Simie.

[cavanami]

...word is the baht will weaken by the middle of next week...stay tuned...

[kamui]

Unlike many western countries the Thais don't appear to have huge levels of sovereign debt. And even thought their economy appears to be doing well I think the strong baht must eventually have a negative effect on their key industries such as tourism?

Simie.

 

Tourism might be a key industry, but I wonder if it has a strong lobby, because it is highly fragmentized.

 

 

 

[shygye]

... a strong baht hurts Thai exports. Japan is trying to deal with its strong yen.

[Old Hippie]

This is my point, if it gets too strong, factories might close, tourists move on etc...

[Sporty]

Thailand baht is not a free floating currency, since 1997. They use a formula, to keep the baht stable.

 

The formula, for the baht, is heavily weighted to the value of the YEN and $USD. So, the YEN, being a bit out of historical ranges, is a lot of the reason. When the YEN changes, Japanese Government intervention, has been talked about for many months, so will the baht. Will the Japanese Government do anything, who knows.