Business leaders accept that Thailand has two problems, one being the high value of the Thai baht and the other being the disruption to world trade peace. They are calling on the Thai government to focus on controlling the value of the Thai currency with some expressing the view that this is the primary reason for the country’s export contraction in 2019.

Thailand’s central bank governor on Wednesday announced an extensive range of measures to reduce capital outflow controls to curb the spiralling value of the Thai baht.

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The package of measures announced by Bank of Thailand Governor Veerathai Santiprabhob may give cause for hope to exporters feeling the pressure from the still-rising Thai baht which go into effect this week. It comes as business leaders call on the government for a committee to coordinate efforts to rein in the Thai currency.

Veerathai Santiprabhob, the Bank of Thailand boss, in a key speech in New York recently expressed an opinion that the rise of the baht was more to do with capital inflows rather than current accounts surpluses.

His move this week comes as the Thai central bank has also lowered interest rates and business leaders are calling on the government for a standing committee to be set up between Thailand’s exporters and the country’s economic leadership to focus squarely on reining in the value of the baht which many business leaders feel should be priced at ฿32 to $1.

Made good on his promise to bring in measures

Thailand’s central bank governor made good on what was a recent promise to relax capital outflow requirements. The measures are intended to ease the upward pressure on the Thai baht which the bank boss believes still to be driven primarily by capital flows rather than a reaction to Thailand’s strong current account position and current account flows.

The bank boss alluded to this in his New York speech when he outlined the peculiar problems that Thailand is experiencing as an emerging market with a strongly performing currency.

Encouraging Thais with money to invest abroad

The measures announced by Veerathai Santiprabhob on Wednesday are quite extensive. They allow exporters to keep revenue abroad while also encouraging Thai investors to invest in foreign markets including securities and property.

Range of thresholds moved and red tape cut

A range of thresholds have been increased and in some instances, paperwork and documentation requirements have been abolished. The moves are expected to have the added benefit for exporters of allowing them to manage the fluctuating value of the Thai baht by holding foreign reserves abroad in addition to cutting red tape.

One of the most eye-catching proposals will allow Thai retail investors to invest in offshore securities up to $200,000 per year. The threshold for investment in property abroad remains at $50 million but now such property can be purchased in the names of family members.

In addition, documentation will no longer be required from commercial and retail banks for transfers abroad up to $200,000.

Measures to reduce the impact of the Thai gold trade as settlements must no longer be in baht

There are also changes in relation to payments relating to gold which should prove effective.

The move means that settlements for the purchases of gold need no longer be in Thai baht through approved companies and those listed with the Bank of Thailand.

All the measures are effective on the 8th November. 

Business leader calling on the government to work with them to bringing down the baht’s value

The move by the Bank of Thailand is timely as business leaders have begun to pile pressure on the Finance Ministry and the Central Bank as the strong baht continues to stymie and thwart exports across a range of industries, particularly the agricultural sector.

Rice mills boss says exports down significantly

The President of the Thai Rice Mills Association, Kriangsak Tapananon, in recent days has highlighted the urgency of the problem which has shown no signs of relief since the beginning of the year and seen the baht rise by as much as 8% against a range of currencies including the Chinese Yuan and the US dollar.

‘We expect jasmine rice exports to decrease to 1.2 million tonnes, while total exports of all categories of rice will decrease to 8 million tonnes, declining from a normal rate of 9.5 million to 10 million tonnes per year or 10 million to 11 million tonnes during some past years,’ Mr Kriangsak said starkly.

Private sector not in full agreement with economists who cite the trade environment as the key problem

The private sector is taking issue with claims by some economists and senior officials at world bodies who strongly suggest that the current world economic environment and trade sentiment is the main reason for the decline in Thai exports this year.

Rise of the baht has been inexorable

Supant Mongkolsuthree, the Chairman of the Federation of Thai Industries this week said that the baht’s rise is becoming the key factor leading to a contraction of exports and the country’s economic growth rate.

The business leader noted that the baht’s appreciation had been ongoing now for years and at the same time showed no signs of abating with the county’s strong current account performance and international reserves.

Correct value for exports is ฿32 to the dollar

Mr Supant referred to the just announced interest rate cut by the Bank of Thailand and did not hold out much hope that it will assist Thai business and exporters. He noted that the baht was currently just above ฿30 to the dollar and indicated the desired value was ฿32.

Vice-Chairman says both the trade war and  baht are factors but the currency is more decisive

A Vice-Chairman of the Federation, Suchart Chantaranakaracha, said that the highly valued baht was doing more damage to Thai exports than the negative sentiment caused by the international trade wars.

However, he also emphasised that both issues were working in tandem to create a perfect storm for the kingdom’s export-led economy and it has already impacted Thailand’s domestic economy.

Standing committee of business and government leaders called for by commercial groups

Business groups this week including the Joint Standing Committee on Commerce, Industry and Banking and the Thai Chamber of Commerce called for a committee to be set up between the government and business leaders to deliver real action to curb the baht as a key economic priority.

Bank of Thailand cuts interest rates by 25 points

The calls came as the Monetary Committee of the Bank of Thailand confirmed the second cut in interest rates this year by 25 points to bring them to the lowest level since the 2008 financial crisis.

The move was made possible by lower than expected headline inflation for October. It follows a surprise cut in August and is an indication of the difficulties currently being experienced by business as Thai economic performance continues to face challenges.

Hopes for a better 4th quarter 

The government’s economic team is counting on a strong performance in tourism for the high season, financial stimulus measures and a ramping up of public investment to produce a better result in the final quarter of the year.

Capital outflow package is cause for hope

However, according to Thai business leaders, it is the movement of the Thai baht that will be decisive.

Some economists have suggested that it will be quite difficult to contain the baht but measures taken by the central bank in the summer were surprisingly effective at curbing speculation. The package announced on Wednesday may be cause for hope.

A decisive Brexit in the UK result would be good for Thailand at this stage as it would offer certainty

 On the international front, the fate of Brexit in mid-December may be important as the UK goes into an election. A decisive victory for the British government would create more certainty.

A much talked about mini deal between the US and China may also help although most expert observers now readily accept that under the current US administration there will be no return to a more benign global trade environment.

Further reading:

Thai economy remains sound says Fitch the ratings agency but baht’s surge may not yet be over

Bank of Thailand governor warns about growing debt levels, calls for sufficiency economic thinking

Finance minister ready to take further action to prevent the Thai economy falling into recession

Trump causes jitters in Bangkok as he signals a further deepening of the trade war with China at G7 meeting

US China trade war may have some silver lining or upside for Thailand if firms can be agile and adjust

Thailand’s PM commits to a global world vision as the country signs up to China’s belt and road

Thailand’s economy impacted by the whims of the US President as much as its political future in 2019

 

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