Thailand’s Super Baht May Be Too Strong For Its Own Good

Thailand’s Super Baht May Be Too Strong For Its Own Good

Two decades ago, Thailand became ground zero of the Asia financial crisis, when its government scrapped a dollar peg with the baht, a devaluation that unleashed a wave of speculative attacks on other regional currencies and shook the global economy. Now, the baht is again posing challenges for Thailand–but this time because it may be too strong.

Near-record foreign exchange reserves and a current-account surplus have burnished the baht’s appeal as a regional haven and attracted foreign capital to Thai bonds. The currency is the strongest performer in Southeast Asia in the past year. The super baht, however, is a complication for policy makers trying to nurture a recovery in an economy where exports account for about 70% of gross domestic product.

The jitters caused by the baht reflect Thailand’s wider post-crisis task: how to shift from a low-cost manufacturer of hard disks and car parts to more advanced industries that can boost incomes further. The military government, under junta leader and Prime Minister Prayuth Chan-Ocha, is promoting Thailand 4.0 to bolster biotechnology, robotics, electric vehicles and other sectors by wooing investment and trying to improve workforce skills.

“The longer term challenge today is the competitiveness of industry,” Bank of Thailand Assistant Governor Chantavarn Sucharitakul said in an interview. “Particularly small and medium-sized companies that benefited from the large depreciation of the currency in 1997, which today may have to find new business models to move to a higher value-added, more competitive space.”

On the upside, Thailand’s sound fiscal, monetary and prudential oversight is trusted by investors and its debt ratios are in check after a “painful” process of reform over the past two decades across banks, companies, households and the government, Chantavarn said.

Thailand scrapped a dollar peg on July 2, 1997 as foreign reserves dwindled after attacks by speculators. The currency crashed, borrowers defaulted on dollar debt, financial institutions fell and a deep recession ensued. The nation drew $14.1 billion of international assistance to help with recovery.

After long-term financial-sector repair and reform, foreign reserves today of $184.5 billion are second only to Singapore in Southeast Asia and exceed short-term external debt more than three times, according to the Bank of Thailand. The current-account surplus was 10 percent of gross domestic product in the first quarter.

The baht has climbed 3.4 percent against the dollar in the past 12 months, the most in Asia after Taiwan’s dollar and the Indian rupee. It was little changed at 33.99 against the dollar on Friday.

The International Monetary Fund, which provided aid to Thailand in 1997, now says the external position is too strong. Central bank Governor Veerathai Santiprabhob has rejected other claims that Thailand is limiting the currency’s climb for an unfair trade advantage, saying it steps in only when inflows surge.

The high reserves could be partly why the monetary authority has gradually liberalised outbound foreign investment rules, according to Rahul Bajoria, a senior economist at Barclays Plc in Singapore.

“If investment projects pick up steam, we would expect demand for capital imports to rise, which may help create more even conditions for foreign exchange,” said Bajoria.

Yet private-sector investment has been subdued since the generals seized power in a coup in 2014, while a run-up in household debt is weighing on consumers. Economic growth is accelerating on a nascent export recovery, tourism income and government outlays. But it remains the weakest in emerging Southeast Asia at just over 3 percent.

The current stretch of military rule is the longest since the early 1970s, in a country that has endured about a dozen coups since putting an end to absolute monarchy in 1932. A new constitution promulgated in April set the stage for a possible return to some form of democracy next year.

Amid the political uncertainty at home, Thai businesses invested a record $13 billion abroad in 2016, dwarfing inflows of $1.6 billion. Companies including Asia’s biggest cement maker Siam Cement Pcl, or SCG, and renewable energy business BCPG Pcl are seeking to tap overseas markets.

The government is trying to turn the focus back on domestic opportunities. The administration has unveiled 56 major infrastructure projects worth about 2.3 trillion baht ($68 billion), Bank of Ayudhya Pcl research shows.

Thailand 4.0 is partly focused on a proposed 1.5 trillion baht investment over five years to add railways, new cities and modern industry on the eastern seaboard, a plan the government says can link with China’s Belt and Road Initiative. Most of the money is expected to come from the private sector.

Thailand is competing with the likes of Vietnam, Cambodia and Myanmar for foreign-direct investment, said Arthur Kwong, head of Asia-Pacific equities at BNP Paribas Asset Management Asia Ltd. in Hong Kong.

“You really need to see more stability from a top-down perspective,” he said. “Thailand is no longer the only country available for FDI. There are more choices now and the attention has probably been diluted by new frontier markets.”

Such competition also underscores the need for better skills. Thailand needs improved workforce education, especially with the population aging and the proportion of working age shrinking, said Ulrich Zachau, the Southeast Asia country director for the World Bank in Bangkok. “That’s a big structural issue for Thailand,” he said.

The lender describes Thailand’s social and economic development over the past four decades as a remarkable escape from poverty.

But while financial-sector reforms, substantial foreign reserves and Bank of Thailand banking oversight may provide a backstop against a repeat of the 1997 implosion, the question is whether the next four decades will see similar progress.

Thailand recognizes the need for, and is working toward better labor force skills, technology upgrades and more research and development to escape the middle-income trap, Chantavarn from the Bank of Thailand said. “The challenge is in the execution,” she said.

Source: Thai Visa

  • ilovebangkok

    if the BoT as so confident why did they reduce the bank deposit insurance from 50 million to 25 million in August, 2015. Then again to only 1 million baht in August, 2016.

    • John 2

      This is not correct. It is like written below.

      “The Deposit Protection Institution Act took effect on 11 August 2008. Since then, the initial full-coverage protection limit of 100 million Baht per depositor per financial institution has been continuously reduced, to 50 million Baht on 11 August 2012 and to 15 million Baht on 11 August 2016. From 11 August 2020, the Deposit Protection Agency will lower the deposit coverage limit to 1 million Baht.”

      • ilovebangkok

        source please.

        • Charles Baht Esquire.

          Get off your fat asz and get it yourself .

      • St George

        ZZZZZZZZZZZZZZZZZZZZZZZZZZzzzzzzzzzzzzzzzzzzzzz with you around dont need my Rohypnol to get to sleep

        • Mr Infidel

          Uneducated philistine

          • St George

            Neo bourgeois ass-wipe

  • ken

    “Thai businesses invested a record $13 billion abroad in 2016, dwarfing inflows of $1.6 billion”–makes sense, why would anyone want to invest in a corrupt, unstable kuntry like this wasteland.

    “Chantavarn from the Bank of Thailand said. “The challenge is in the execution,” she said.”—This is the problem with most of the tasks/projects here, the ineptitude and corruption is always much stronger than the plan which is why failure is still the leading stock in this wasteland.

    • soidog

      I always leverage any dilution in frontier makets with top down perspective, thought everyone knew that.

      • St George

        Your boring city boy posts are vomit inducing BUUUUUggggghhhhh

        • Charles Guest

          so are you and hope you do vomit some internal organs, that would be worthwhile.

          • St George

            I can open your gut up and lay your organs on the floor and give you an anatomy lesson free of charge, except your brain as you sadly dont posses one!

          • three Tigers

            zzzzzzzzzzzzzz, you are boring as a thai motor driver. hahahah.

          • St George

            Go away you pest

          • LA Pest is the Best

            calm down Jacky boy and take your BP meds, remember what the doctor told you, You are way too agitated today with your cockney bull you are spreading everywhere. try to relax or better yet go kill yourself,

          • St George

            Go and dig up your dearly departed scumbag hillbilly relatives, you can polish the bones and sell them as Ivory in Hong Kong!

          • St George

            Go and suck your fat baldy old daddy off

          • St George

            Snore ZZZZZZZzzzzzzzzzzzzzzzzzzzzzzzzzzzzz you are more boring than watching paint dry

      • St George

        Correction (markets) 😀

        • Postatoes

          you making grammatical corrections is laughable Jacky boy, you make more errors than the staff at P1. Stick to things you know best, making useless threats and gay comments to the guest, you lovers you.hahahahaha

          • St George

            No i donso t you stinking shameless liar American idiot , go back to Dixieland you are not welcome here GUEST

          • Mouse

            you are not welcome here with any of your personas, go back to becky becky stan you fraud!

          • St George

            I unlike you little rat i am not a fraud i have one account one persona and all my upvotes are proof of my brilliance, you are just a little old unimportant gimp that noone looks at twice on the street, ie a NOBODY; so phukk off you littlekuuuunt back to your cheesey hole and die

          • St George

            The only error is your lard arzz muvva giving birth to an American dropout loser like you, you as*-wipe and frustrated gimp

          • St George

            You are the biggest fagoot on the whole site, you and your ugly sister gumble ,pair of washed up sun dried stone washed levis old queens

      • tyrone

        explain please

        • soidog

          Going forward on the strategic staircase with blue sky thinking when there is little bandwidth for the helicopter view …it’s all business speak jargon .

          • St George

            You obnoxious wimp , should die of a thousand cuts with a blunt knife

  • Pingback: Anonymous()

  • Zzap

    On other thing to note:

    It was only one week ago that the BoT publicly announced that a strong baht was not a problem for Thailand, and having “no impact on exports”.

    So once again, we are left with only two options:

    1) The BoT does not have a clue, and is often wrong.
    2) The BoT lies.

    Either way: Do not trust the announcements from BoT.

  • Ken Anderson

    “The longer term challenge today is the competitiveness of industry,”

    I would say in this wasteland, competence is a far bigger issue than competitiveness.

    • Mouse is Guest

      Why don’t you go play with your snakes? Jesus, you are the most boring and repetitive troll in these part. I can see why you hate yourself so much, you bore yourself to tears.

      • private pile

        Troll???? Troll? Complete noodels ken is no troll a bit cinicle yes but really Just a guy like many of us with a few scars from previous experiences and probably just too wise to thai ways..which get to all of us in the end…id say top slot (trolls) goes to Charles baht Esquire aka the trump aka the one that crumbles then grumbles but on a lighter note even he posted a message I wet myself too the other day I had to give the fella credit. I was laughing for a long time after reading his onslaught against the fat pommy poms of view talay. It was not too different to his usual speals just added furiouscity I’m guessing from some Sansom…… hang on this could well be grumble himself winding up ken….. well what ever who ever how ever…. leave ken alone or I’ll get nasty and start using capital letters in my next reply! You’ve been warned

    • St George

      Pretending you know something about business you senile old goat, bet you can just about log into your online banking to see if your uk pension is there!

      • Ken Anderson

        Don’t do internet banking. Always deal in cash.

        • St George

          Stuck in the 20th Century i see!

          • Ken Anderson

            Not at all. Too many problems with internet banking in the past, no longer trust it.
            I most certainly would not trust anything like that in this wasteland.

  • Sly

    ‘My Mate Nate’ tried to get the currency to flatten off and look at all the grief it go him. Do someone a favour and look what happens.