FTI: Strong baht threat to local suppliers

The Federation of Thai Industries (FTI) has warned that a strong baht could destroy the supply chain from domestic industry, because manufacturers had already begun importing cheaper materials and parts instead of buying locally produced supplies.

  • Published: 3/05/2013 at 05:00 PM
  • Newspaper section: topstories

Payungsak Chartsuthipol, chairman of the Federal of Thai Industries, asks Prime Minister Yingluck Shinawatra to take action to rein back the value of the baht at their meeting on Friday. (Photo by Chanat Katanyu)

The FTI also proposed that the government act urgently to resolve the problem of the currency's over-valuation.

The  regular meeting of the central bank's Monetary Policy Committee (MPC) scheduled for May 29 may be too late. The baht's value is likely to appreciate again next week because the EU has just cut interest rates by between a quarter and 0.5 percentage points.

FTI chairman Payungsak Chartsuthipol told Prime Minister Yingluck Shinwatra there is an urgent need for action to curb the baht's strength.

The problem remained unresolved even though the private sector had raised the topic several times with  related economic agencies over the past four months.

"The FTI doesn't want the government to depreciate the baht, but we want the Thai baht to relate more to the currency of our competitors in the region, and a more stable foreign exchange rate," Mr Payungsak said.

"We worry a lot that the strong baht will continue to impact exports in the second and third quarter because  exporters are now left without orders because they are worried about the fluctuation of the baht," he said.

Mr Payungsak said Thailand has a strong domestic industry supply chain - upstream, medium stream and downstream - but this could collapse if there was no short-term solution, resulting in a drastic impact to labour.

Imported goods were now cheaper.

FTI vice chairman Vallop Vitanakorn said entrepreneurs were now importing raw materials and parts at a time when the trade deficit was US$10 billion over a four-month period.

Raw materials and parts were being imported by the automotive, textile, high technology, printing and jewellery sectors.

Mr Payungsak said export growth this year may be half of expectations,  4-5%, instead of 8-9% , if there is no solution.

The FTI proposed a cut in the policy interest rate from 2.75% to 1.75%. The Finance Ministry and the Bank of Thailand should also implement additional measures to reduce foreign capital inflows benefiting from the high Thai interest rate, and stabilise the baht's fluctuation.

Signals and warnings of the baht's rapid appreciation had started in December, and the private sector felt the appropriate agencies had done nothing in response. The baht had kept appreciating, to 29 baht against the US  dollar in May from 31 baht late last year.

The Thai currency has appreciated 6% since the beginning of the year, against only 0.27% for Malaysia's currency and 0.69% for Indonesia. The Japanese yen had depreciated by 15% and Vietnam's dong dropped by 0.7% and 5% of Korea's won. The Chinese currency was stable.

Foreign capital inflow is likely to continue for the next 2-3 months because European Union is likely to implement measures to stimulate the economy in the next 2-3 months. 

Mr Payungsak asked the prime minister to take action to ensure an integrated solution by monetary and fiscal policy makers. Continuing conflicts might result in the collapse of the Thai supply chain and domestic industry. 

"The fluctuation of the baht, the baht's appreciation, and attendant speculation has impacted not only small and medium enterprises but also the supply chain, medium scale and large industries," he said.

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Writer: Chatrudee Theparat
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