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FINANCIAL MELTDOWN
Tarisa: Thai impact comes from reaction
PARISTA YUTHAMANOP
Thai economic trends will primarily hinge on whether market rescue programmes implemented by the United States and Europe are successful in reviving confidence, according to Tarisa Watanagase, the governor of the Bank of Thailand.
Dr Tarisa told the Bangkok Post that Washington's $700-billion bailout programme to buy bad assets in the banking system appeared less comprehensive than the bank recapitalisation plan announced by the United Kingdom.
"The plan adopted by the UK is more inclusive and should restore confidence better than the US version," she said in a telephone interview from Washington, where she attended the annual meetings of the World Bank and International Monetary Fund.
"The problem lies in loss of confidence. Whether the impact on the economy will be great or small will depend on how the package performs in restoring confidence."
Leaders of the Group of Seven industrialised nations also vowed over the weekend to take all necessary steps to avert the systemic collapse of the global financial system.
Dr Tarisa said Thai housing and stock prices would be safe from crisis swoons, as local asset prices had not ballooned over the past several years.
But asset prices will reflect a slowing economy caused by the economic recession in the US and Eurozone due to the global financial turmoil.
"We have had no bubble in the economy, whereas the US and EU built up this asset price bubble and finally it burst. Unlike the 1997 crisis, domestic asset prices should not decrease dramatically," she said.
Dr Tarisa said the impacts of the global economic slowdown on exports had not yet clearly been seen in the latest economic data.
The latest indicators showed exports decelerated sharply in August, but the shipment value when averaged with that of August was on par with the first half of 2008.
Exports are likely to decline over the next several quarters, even though trade within Asia accounted for 60% of Thailand's total exports.
This is because the slowdown in US demand will affect Asian economic growth.
Dr Tarisa insisted that impacts from external factors on the local financial market are limited as the banking system reported a small amount of external exposure in their balance sheets. Capital adequacy ratios are also high for the system, at over 15% compared with the regulatory minimum of 8.5%.
"Eighty percent of the local banking system's funding came from retail depositors, unlike financial institutions in developed countries that have high overseas liabilities. We have no problem at all in terms of solvency, liquidity or potential loss of confidence," she said.
Dr Tarisa urged the business sector to improve risk management against volatility in external factors through means such as currency hedging and careful expansion.
"The business sector should heed His Majesty the King's sufficiency economy philosophy. Don't expand too much and follow your conscience in what you should do. We are not certain how severe the effects will be, but there will be volatility," she said.
"A lesson that can be drawn is that we should not be reckless. Once in a while there are crises, because we never learned our past lessons. Under capitalism, everyone is driven by profits."
Dr Tarisa added that the decision by the central bank's Monetary Policy Committee to keep its one-day repurchase rate unchanged at 3.75% reflected slowing domestic demand.
She added that the slowdown was primarily in public sector spending and investment, with demand from the private sector still strong.
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