Tarisa says weaker baht won't help

Business » Economics

ECONOMY & TRADE

Tarisa says weaker baht won't help

Published: 20/02/2009 at 12:00 AM
Newspaper section: Business

Any move to weaken the baht to help exports would ultimately prove futile, according to Tarisa Watanagase, the governor of the Bank of Thailand. The government this week suggested current exchange rates may be hurting Thailand's export competitiveness. Exports in January recorded their biggest decline in a decade with a 26.5% year-on-year contraction to $10.49 billion.

But Dr Tarisa said exchange rates had been less of a factor in export performance than the decline in demand from the United States, Japan and Europe.

A central bank study found that Thai exports would fall 1.6% for a 1% decline in economic growth for key trading partners. Every 1% decline in the value of the baht would only lift exports by 0.2%.

The baht has remained relatively stable in recent months, closing yesterday at 35.50 to the dollar. For the year to date, it has fallen 0.7%, and by 3% from 2008.

Dr Tarisa said the baht was ''in the middle of the range comparing to regional currencies'', and added that export competitiveness should not be considered only in terms of exchange rates.

The baht's competitiveness in real terms had actually improved, with the real effective exchange rate falling to 87.16 in December from 89.91 in November when indexed against 20 currencies of trade partners and competitors.

Dr Tarisa, speaking at a forum held by the Sasin Graduate Institute of Business Administration, said the rapid decline in inflation in the second half of 2008 had significantly cut business costs.

In any case, the impact of the global downturn was affecting the entire region.

''Many other countries have already experienced [steep] declines in exports. Now, we are recording a worse decline than others,'' she said. ''As a matter of fact, [the export declines] are a surprise for the region, as there was the thought that the rise in intra-regional trade could save exports. Now we know that this hope has dimmed. Our exports to China have dropped quickly in recent months.''

Pramon Suthiwong, the chairman of the Thai Chamber of Commerce, warned that the government should consider the potential increase in social disruption and stress from rising unemployment.

Migrant workers are another potential issue, he said, considering that there were two million legal immigrants registered in Thailand and an unknown number of illegal workers.

About the author

Writer: PARISTA YUTHAMANOP

Keep this article in your social bookmark:

Latest stories in this category:

Share your thoughts

For more candid, lengthy, conversational and open discussion between one another, use our Forum

Report objectionable comments click here. Include: discussion #, commenter name, comment date / time as it looks on the page. Example: discussion 15: 09/01/2009 at 10:00 AM.

Turkish

Discussion 29 : 24/02/2009 at 10:54 AM29
Petty Tyrant
I dont understand how a strong baht helps the rural poor or soon to be unemployed. Can you explain it to me?
PettyTyrant

Discussion 28 : 22/02/2009 at 10:51 AM28
No Fool: I am correct. THe tide has gone and and you europeans have been caught with no underwear...now you are asking everyone else to take of theirs too..

Thailand is facing a massive unemployment problem in the coming months... 3-6 million by some estimates... the only thing Thailand has going for it is it's huge currency reserves...these reserves are keeping prices stable in this poor country.

What you tourists are asking Thailand to do, is increase prices of the domestic poor so that you may holiday here.... Anyone ever here that Dylan song..Mozambique...

The thai baht is not having any problems right now but the coming economic problems require Thailand to hold its cash for now... this crisis has just started...

Any you tourists who think i'm off my rocker....just you wait and see... you statements here tell me you have no idea the magnitude of the world crisis...no one is going to be going on holiday... not for a long time... Devaluing that would be useless...tourism is grinding to a hault not because of the value of the baht...but because no one has any money left...
Wemick

Discussion 27 : 22/02/2009 at 10:09 AM27
Yes competitive devaluation is only a short term fix. But it's a short term fix that is needed. The rebound is not going to be second half as Abhisit says. It is going to be a long economic slump. It will take time for all the West's stimulus packages to kick in. Korn saying the world is looking to Asia to spearhead a recovery is rubbish. But he's good at talking rubbish.

In the meantime Thailand can do itself a lot of favours by devaluing or at least not defending the baht thereby improving competitiveness.
Anne C.

Discussion 26 : 22/02/2009 at 02:54 AM26
Most weeks in Pattaya or some other tourist city in Thailand many a farang of the sex tourist nature meet the fait and are returned to loved ones all nice and cool in body bags,.what color one would you like ''famous sex tourist'',some say it's sorta like natures self reduction programe of fools,.If you don't believe google this subject,enjoy your new full zipper jacket soon.
MekhongKurt

Discussion 25 : 21/02/2009 at 10:05 PM25
Obviously, this entire mess is extremely complex. If the Whiz Kids who were the Captains of Commerce and ran Central Banks blew it -- and let's not forget that a heck of a lot of them worked genuinely hard and had the best credentials -- and least by previous standards -- around, can't get it right, we're in uncharted waters. I guess we can think of it as the economic equivalent of the European Age of Exploration (Columbus, Magellan, Captain Cook, etc.).

A lot of people keep talking about a Great Depression II, but that's inaccurate.

For example, at the depth of the G.D. in the U.S. in the 1930's, unemployment hit around 25%. Today, it's somewhere around 7-8%, and predicted may reach somewhere in the 10% range. That's a lot less severe.

Another example is the nature of international trade today compared to the 1930's. Of course there was considerable global trade, but not in the sense we have it today. Trades are instantaneous and automatic via computers, not made over telephones and telegraphs.

Which is not to say the current situation is frightening and extremely dangerous.

Regarding the exchange rate, if I look at it solely within the context of my own situation, bring it on. Let the baht drop to 60 -- every cent I get is a U.S. one, from the U.S., so that makes my baht income go up.

Aha . . . but that lasts only so long. Even if the baht were to hold at 60 to the US$, eventually inflation would eat away at the purchasing power of my income to the point that I could buy no more with my 60 baht than I previously bought for 35 baht, both domestic and foreign.

And I do think about my Thai hosts, especially my Thai friends. Initially, they would benefit in buying purely domestic products, though not imported ones or any using imported parts, but eventually the inflation factor would bite them right on the tail, too. Most of my Thai friends are, financially, upper lower class, at best, and some are poorer than that. And there are plenty of out-and-out poor people in the Kingdom. I don't want to see the Thais (or anyone else) suffer.

The rice issue is more to the point. Vietnam and Cambodia both beat Thailand hands down on that front, and if India releases its stockpiles . . . who knows what might happen? Will they be able to find buyers even if they go unthinkably cheap? Maybe, maybe not, in this situation.

There are three areas that conceivably make some difference, both short-term and long-term, though I'm on very shaky ground here, given the lack of hard, reliable data.

First is corruption, including price inflation for foreigners investing. Second is the ownership issue, especially in the context of the Foreign Business Act. Third is the complex yet ultimately weak legal system. I haven't the slightest idea how to quantify the economic impacts of any of those, nor even if they can be quantified. But way down deep I suspect we're talking some serious, serious money here. As in at least hundreds of billions of baht annually, perhaps run that on up into 12 digits.

But, admittedly, I might be whistling in the wind on those matters.

Anyway, much as I might spasm in delight, in the short term, were the baht to nosedive, I don't see it as an answer.
No name

Discussion 24 : 21/02/2009 at 06:37 PM24
When will the Central Bank intervene depreciated baht which has been sinking quite rapidly since new year? U.S.Dollar and Yen get stronger while gold prices are almost $1000 per ounce right now. Gold prices and dollar are normally moving in opposite direction in the market. If I'm right why this happens?
Rahirithai

Discussion 23 : 21/02/2009 at 11:23 AM23
It seems to me that the people protesting what Dr Tarisa says are reflecting their own pain rather than their knowledge of economics. I wonder how many are Euro/UK expats?

Richard does the maths - a 20% devaluation (might) deliver a 4% increase in exports...the world is in worse shape now than when the report was done so that is a very big "might" and a very big devaluation.

Petty tyrant, however impolitely, is right to point out devaluation will cause other problems: even for exports...as for many of the top 20 exports raw materials are imported - steel for cars, sulfur (now deregulated!) for tyres...etc and that will have a countervailing impact on export prices.

The problem is that global demand for Thailand's main exports has dropped dramatically. While it may seem woeful for Tarisa to express surprise at how bad things are, it's the same story from central bank economists all over the world - this recession is worse than anyone wanted to imagine.

Its just not adequate logic to criticise Thailand's relatively higher decline in exports as due to an overvalued baht. You have to ask the question about WHAT do those exports consist of? As Tarisa rightly points out the baht is not particularly overvalued relative to other exporting countries in Asia. Take a look at the yen! The problem is that of the top twenty Thai exports 17 are in the discretionary spending consumer durable category for which demand has collapsed because people don't buy these things when their 401k plans have collapsed or they have lost or are afraid of losing jobs and or houses.

That leaves shrimps, chicken and rice. The first two are in a good position right now as Japan is the big market and the Japanese are worried about safety and quality from Thailand's main competitor, China. The yen is even stronger than the baht so no issues here and people have to eat regardless.

Rice is a problem. Gordon, I don't disagree with your sentiments about the unfairness in Thai society but the uncompetiitive rice price is not an exchange rate issue. The Samak government put in place the price support plan which Abhisit doesn't dare remove for political reasons - but he should. India stopped exporting last year and stockpiled because of global fears about food security. They are looking to resume exports now - and Thailand's artificially guaranteed price is too high.

As for tourism, as I have said before, a lower baht might allow expats already in Thailand to buy their beer and girls cheaper but it won't dramatically increase the number of tourists. Global tourism is shrinking this year because overseas holidays are also discretionary expenditure.

Personally, I applaud Tarisa both for being accurate and more importantly for having the gumption to tell the truth when for quite while leaders have been telling people want they think they want to hear.

In any case the Thai baht has in the last weeks been steadily depreciating in minute steps against the dollar which may indicate it is being "managed down".

As Korn has finally admitted, Thailand's economy is not going to recover until the global crisis is over
Somboon

Discussion 22 : 21/02/2009 at 12:21 AM22
1997: $1 = 50+ bahts (Thai economics crashed)
2003: $1 = 40-42 bahts
2005: $1 = 35-38 bahts
2007: $1 = 30-32 bahts
2009: $1 = 33- 35+ bahts.

It has not changed that much. As far as tourism goes, it is still a bargain (except in the high end like Phuket, Samui, and all of the first class establishments where hotels cost $600/night).

Another note: Thai hotel workers do not make much money. I have talked to many of them.

Dr. Tarisa is correct (even though I am not too thrill with her) to say, ''As a matter of fact, [the export declines] are a surprise for the region, as there was the thought that the rise in intra-regional trade could save exports. Now we know that this hope has dimmed. Our exports to China have dropped quickly in recent months.''

The demands are jut not there for Thai exports.
No Fool

Discussion 21 : 20/02/2009 at 10:20 PM21
Discussion #20 - Petty Tyrant - you are just as stupid and ignorant. Every situation has two sides - and you are stupid and ignorant enough to argue for only one side!

The devaluation of THB, at a minimum, create an image of "more affordable", especially to the toursism sector.
Petty Tyrant

Discussion 20 : 20/02/2009 at 07:18 PM20
ignorant people.... don't you understand if you devalue the baht, commodity prices increase so the manufacture pay at the front end for raw materials.... Jesus folks get some basic economic education.... if you devalue the baht, it will drive up prices for everything across the board...

That is a heck of a price to pay ..especially since...you ignorant folks can't tell the difference between front and back.... the value of the baht has been fairly stable...It is ONLY the eurpzone that is screwed... Thailand exports to USA and Japan AND THEN NUMBER THREE IS EUROPE...

So why should do you folks keep talking about the baht like it is expensive...as an American, it is just fine for me...and it is getting better...

The Point is that IS IS THE EUROZONE currencies that are screw...The thai baht is stable and doing fine.

You got that folks... You Europeans are not at the center of the world... It is not the thai baht that needs adjusting, it is your own.

1 2 3 Next Last

Name (required)
E-Mail (will not be published) (required)
Choose your avatar
Your comment
Valid code (required)
As a courtesy to our readers, please use proper punctuation and correct spelling.

Tarisa says weaker baht won't help