Thai baht tumbles despite intervention. Economic policy clash threatens confidence and stability. The baht breaks the ฿37 barrier against the US dollar despite the Bank of Thailand’s actions. An 8.8% loss in 2024 is prompting concern. The Central bank-government rift is deepening. This, in turn, is fueling unease. Structural reforms continued to be urged on a government pursuing populist economics.

Despite a return of a current account surplus and the prospect of a better economy in 2024, the baht on Wednesday again broke the ฿37 barrier point against the dollar. On Thursday it was ฿37.15. It came after the Bank of Thailand intervened to temporarily avoid such a breach. The baht has been falling since the beginning of 2024. The reasons, of course, are complex, but essentially there is a lack of confidence, at this time, in the kingdom’s economic planning. Investor capital is moving out. With its ageing population, jaded industrial base and a decades-long failure to address serious structural problems, the current government insists it can spend its way out of the problem. This thinking, which is decades too old, does not align with the current troubled waters Thailand finds itself in. 

Bank of Thailand Assistant Governor Alisara Mahasandana was in Washington DC this week. The central bank banking stability chief held out the prospect of an interest rate policy adjustment. This was due to the permanent nature of structural impediments facing the economy. Nevertheless, the fear is that diminishing international confidence and Thailand’s already low-interest rates are making it vulnerable. The kingdom lacks a viable economic policy strategy as its long-term plans for growth are unrealistic.

Amid real concerns about the direction and management of the Thai economy, the baht has begun to stumble.

It again breached the ฿37 to the dollar mark on Wednesday even after the Bank of Thailand’s intervention. On Thursday, it continued on the same trajectory.

In response, the central bank pointed out that the Thai currency was moving in line with regional peers. However, the baht has fallen by over 8.8% against the US currency since the start of 2024. Certainly, it is the worst performer in Asia except for Japan this year.

Differences in policy and approach between the central bank and government are now driving a lack of confidence in the kingdom’s economic management

There are many reasons for this. Firstly, a transfer of funds out of Asia is continuing. The remarkable success of the US economy with relatively higher interest rates is a key problem for Thai planners.

Nonetheless, the spat between the Bank of Thailand boss Sethaput Suthiwartnarueput and PM Srettha Thavisin is undoubtedly a key factor.

This week, the central bank chief again asked the Prime Minister to consider the Digital Wallet Scheme. At length, the banker wants the scheme limited to those in need. This would drastically reduce the cost of the stimulus measure to approximately 25% of the ฿500 billion budgeted.

At the same time, the government’s funding for the scheme is again in question. It comes as the legality of a proposed loan of ฿172 billion from the government-owned Bank for Agriculture and Agricultural Cooperatives (BAAC) is being questioned.

Digital Wallet Scheme is a major headache for the government yet it persists in its implementation even with opinion polls showing it is quite unpopular

Presently, Srettha Thavisin’s government is proposing utilising money out of the 2024 and 2025 budgets. In addition, it seeks the bank facility to fund the scheme.

The Digital Wallet scheme, as proposed, would see ฿10,000 in digital credits to all adults over 16. The first condition at this time is to be a recipient of income less than ฿70,000 per month. In addition, those receiving the credits must not have access to more than ฿500,000 in savings.

It has been openly questioned by opinions sent to the government from the National Anti-Corruption Commission (NACC) and Council Of State. However, the government insists on a positive interpretation of such counsel and persists. 

Prime Minister Srettha still doggedly pushing his less-than-popular and legally perilous Digital Wallet plan
Central bank rate call a minor issue compared to the surge in fiscal spending and deficit planned in 2025
Digital Wallet plan is not popular as opinion polls show. Nearly 66% say it should be scrapped or reconsidered as PM Srettha insists on pursuing the idea

In short, there are fears about the scope for fraud in the scheme. In addition, it is not popular with the public according to opinion polls. The latest poll shows 65.95% of the public want the plan recalibrated or scrapped altogether.

Interest rate policy sees a public fight between the PM and the central bank. Calls for lower rates based on dubious thinking. Thailand needs hard medicine

At the same time, there is an even greater difference of opinion between the central bank and the government. It concerns Thailand’s interest rate policy.

Presently, Thailand’s base loan rate is at least 3 percentage points below rates on offer in the United States.

The attractive high-interest rate regime stateside, including bond returns, is certainly a factor in drawing capital out of Thailand.

While Mr Srettha and his ministers berate the central bank for high-interest rates, the policy, seen from the outside, appears dovish.

US rates are currently at 5.5% with Thailand’s at 2.5%. In a world financial marketplace, the difference between them is not sustainable.

On the other hand, theorists suggest that with a lack of growth and negative inflation, lower interest rates make sense. However, this thinking is dubious.

For instance, the reality is that Thailand’s lack of growth is due to structural barriers. At the same time, negative inflation is due to government energy subsidies, especially for electricity charges.

Classic conflict between Keynesian theory and the 1980s economic theories of Milton Friedman. In a free market, higher-priced money can lead to progress 

The situation is a classic conflict between Keynesian theory and the economic thinking of Milton Friedman pursued in the UK and the United States in the 1980s. Unfortunately, the latter approach would prescribe extremely hard medicine for the Thai economy. 

At the same time, Thailand is not a first-world or fully developed economy. On the other hand, it is still very much a laissez-faire one, perhaps one of its great strengths.

Significantly though, the continued growth in the United States demonstrates that higher interest rates do not always impede growth. 

Certainly, it impedes rising property prices and makes things difficult for heavily borrowed companies or corporations.

At the same time, it puts a higher price on money which can lead to the banking industry having more scope. In effect, it forces the economy to become more competitive.

Ironically, it can additionally be good for small businesses with bankers being encouraged to take risks.

The Prime Minister on Tuesday met top banking leaders and asked them to assist small business concerns. However, low-interest rates really help big firms

Nevertheless, the ongoing spat between the central bank and the government over interest rates is undermining confidence. On Tuesday, Prime Minister Srettha met with top executives of the country’s leading banks.

He asked them to help lower interest rates for struggling enterprises and SMEs in particular.

A key point is that the margins afforded to Thai banks are higher than their international peers.

This is seen as essential as the financial stability of the banks is a significant factor underpinning the economy.

In the first quarter of 2024, Thailand’s banks reported strong profits. However, there is growing concern about rising bad loan provisions. In addition, medium-level banks saw lower profits entering 2024.

Basically, the central bank is telling the government that the country’s economy needs urgent and long-term structural reform.

In the meantime, the government appears content to focus on stimulus, which inevitably will increase public debt.

Even the vaunted foreign tourism industry this week found itself cast in a more negative light. Bank of Thailand figures show falling spending per visitor

The government is also dependent on strong foreign tourism numbers.

However, the Bank of Thailand is showing a far lower spend for visitors than the government or the Tourism Authority of Thailand (TAT) claim.

This is coming out at just over ฿30k per visit compared to claims by the government of ฿50k, which was the expenditure per tourist seen in 2019.

In addition, there is the country’s new tax regime aimed at foreign transfers.

The new tax regime is not only impacting expats and retirees living in Thailand but also impacting other groups. Notably, this includes international investors and financial capital managers.

This includes those considering moving to Thailand, in addition to large investors.

Bank of Thailand executives appear to be trying to find common ground with the government but are constrained by concern for Thailand’s economic stability

Bank of Thailand assistant governor Piti Disyatat on Wednesday had a message for the government.

In brief, he told reporters that lower interest rates are not what the Thai economy needs right now.

Certainly, it would not help small business concerns. Firstly, they cannot access funding as the economy lacks competitiveness.

The central banker defended the April 10th decision of the Monetary Policy Committee to keep rates as they are. The next review will be on June 12th. 

The expectation is that a 25 basis points cut will be seen. At the same time, there are real fears that this could further weaken the baht.

Government must tackle long-term problems while the economy is still stable and growing, albeit slowly

On Wednesday, Mr Piti also underlined the economy’s structural problems.

These have been ignored by successive governments for nearly two decades now. This is the reason for Thailand’s economic decline.

That decline is now feeding into unease in financial markets and the Thai currency.

Mr Piti similarly pointed out that negative inflation was not an issue. In short, it can be explained by government energy subsidies.

It was not a sign of a lack of demand or confidence among consumers. Nonetheless, consumer confidence fell last month as unease grew over the economy in 2024.

In Bangkok’s financial sector, analysts are more sanguine. They point to a possible upside in 2024 and growth from 2.6% to 3%. This is compared to only 1.9% in 2023.

Meanwhile, as Mr Srettha met the heads of Bangkok Bank, Kasikorn Bank, Krungthai Bank, and SCBX at Government House on Tuesday, a Monetary Policy Committee member and senior Bank of Thailand official was in Washington.

After his meeting, the PM’s message was a populist one.

‘Vulnerable groups like SMEs have a problem with high interest rates. I asked the four to consider interest rates,’ he disclosed.

Another Bank of Thailand Assistant Governor was in Washington DC. She raised the prospect of an interest rate policy adjustment as the economy is impeded

At the same time, Ms Alisara Mahasandana held out an olive branch. Ms Alisara is responsible for banking stability.

She told a World Bank and International Monetary Fund (IMF) meeting that if structural problems were indeed impeding economic growth, rate policy could be adjusted.

The Bank of Thailand assistant governor also underlined strong economic growth in 2024 and a return to a current account surplus.

Meanwhile, the baht is also suffering due to heightened geopolitical problems. A possible escalation in the Russian-Ukraine War in addition to hostilities between Israel and Iran weighs heavily on markets.

Oil prices have risen because of this. In addition, manufacturing in China has picked up while the Organization of the Petroleum Exporting Countries (OPEC) has cut quotas.

Nevertheless, the fear is that Thailand’s long-term lack of growth is catching up with it. Decades-long negligence of the country’s structural problems are now coming home to roost.

Even Thailand’s foreign tourism industry is being seen as jaded with concerns raised this week about over-tourism after public protests were seen in Spain

There is even a feeling that the country’s tourist industry has become jaded.

Despite rising numbers, public dissatisfaction is emerging about over-tourism. It comes with Thai residents dealing with a growing pollution crisis linked with corruption and mismanagement.

In addition, as in other countries such as Spain particularly, there is a growing antagonism towards tourists.

Particularly in Phuket where even tourist leaders have aired concerns. They fear the local populace has had enough of lawless foreigners on the resort island.

Undoubtedly, Thailand needs to decide whether to become a tourist-led economy or otherwise.

The facts on the ground argue against the kingdom’s ability to compete for major industrial concerns despite repeated government efforts.

Either way, what is missing is a realistic and honest strategy.

Geopolitical tensions are growing particularly in Asia

Additionally, there are rising fears of instability in Asia with growing tensions between China and the United States over Taiwan and the South China Sea.

In short, the country finds itself with an economy in danger located in a dangerous part of the world.

In the meantime, its government appears incoherent as it persists in thinking that stimulus alone can revive the economy.

Similarly, like Japan, its ageing population is the underlying concern. Only the yen has seen a deeper fall in 2024 against the US dollar, so far.

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Further reading:

Central bank holds interest rates. Economy will grow 2.6% in 2024 as Srettha pushes home ownership

Central bank rate call a minor issue compared to the surge in fiscal spending and deficit planned in 2025

Economy unlikely to grow in first quarter as Thai manufacturing crumbles. Hard choices ahead

New Finance Minister expected in April as economic malaise deepens with downgrades in GDP growth

Bank of Thailand holding strong against a strident push by the PM for more populist economics as debt levels rise

Property market glut sees minister’s call for supports in the face of the central bank’s ongoing credit crunch

Prime Minister Srettha still doggedly pushing his less than popular and legally perilous Digital Wallet plan

Digital Wallet plan blown out of the water by corruption body on Tuesday warning of illegality

Srettha outlines Digital Wallet as his government begins to flounder with a faltering economy and confusion

Economy is in troubled waters with fears for both exports and foreign tourism as 2023 winds down

Thailand faces an economic future of low growth despite Srettha’s plans because of a darker world

Another dip for the baht or are economic danger signals flashing for both Thailand and the world?

Bank of Thailand boss appears critical of the new government’s policy initiatives on the economy