Wave of investment money likely heading towards Asia and Thailand from US
- Published: 28/10/2010 at 07:43 PM
- Online news:
The US is deeply mired in a sluggish economy with high levels of unemployment. US policy to get its economy moving again may affect Asia.
To pull itself out of this slump and jumpstart the economy, US will soon be launching a new monetary policy known as QE2 (Quantative Easing 2), economists predict.
This is likely to result in excess liquidity and credit in the global economy with much of this flowing into Asian economies in the form of investments in stocks, bonds and real estate.
The value of the US dollar is likely to decrease (depreciation), while the value of Asian currencies such as the Thai rise (appreciation).
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Inflows are likely to worsen by Chatrudee Theparat and Phusadee Arunmas
The baht is expected to continue gaining for another 18-24 months, as the US and EU governments are likely to extend monetary easing to stimulate their economic growth.
Foreign capital inflows are here to stay," said M.R. Pridiyathorn Devakula, former central bank governor.
The Thai government should introduce [an additional] tax on foreign capital inflows, largely in the bond market, to help stabilise the baht and maintain the competitiveness of the export sector.
Speaking at a seminar on "Risks to the Thai Economy and Economic Growth in 2011", the former finance minister cited a 6% Brazilian tax on foreign capital inflows that curbed the influx.
He said foreign capital inflows of as much as US$30 billion flooded into Thailand from June to September, equivalent to what was seen in the whole year in 2008 and 2009.
I have never seen such massive foreign capital inflows in the past five years," he said, warning that inflows were likely to soar because the EU and the US are expected to extend their monetary easing to spur economic growth.
M.R. Pridiyathorn forecast the US interest rate would be cut to zero in the near future from 0.25% currently, generating a huge pool of liquidity in global markets that was increasingly being shifted to Asia in search of higher yields.
Prime Minister Abhisit Vejjajiva is probably aware of this threat, but he may not realise how deep the problem is and its impact on the Thai private sector," he said.
The Thai baht has gained the most among currencies in the region except Japan, increasing 10.5% compared to 10% gains for the Singapore dollar and Malaysian ringgit, 6% for the Philippine peso, 4% for the Taiwanese dollar, 2% for China's yuan and 0.4% gains of the South Korean won.
The inflows to the Thai stock market also sent the index soaring by 30% to almost 1,000 points in four months.
M.R. Pridiyathorn added that over a longer term, these capital inflows could cause a real estate asset price bubble. "Currently, speculation in real estate is increasing."
Paiboon Nalinthrangkurn, CEO of Tisco Securities, said he agreed with state measures to stem short-term inflows, especially for bonds of less than one year, as inflows and outflows of foreign capital arise very quickly.
But he argued the government should not come up with any controls on investments in long-term bonds, as the Thai capital market still needs more development and greater liquidity to help shape the industry's growth.
Suparut Kawatkul, vice-president of the finance and investment committee of Charoen Pokphand Group, said the baht's gains had cost the country 200-450 billion baht in lost revenue, excluding losses incurred from interventions by the Bank of Thailand.
The government should accelerate investments in infrastructure such as irrigation systems for agriculture, logistic networks and promoting the private sector to expand their investments to increase productivity. Use the country's massive foreign reserves, which are estimated at as high as $170 billion.
Mr Suparut, a former permanent secretary to the Finance Ministry also urged the government to offer tax incentives for businesses to invest overseas, especially in Asean, and higher tax allowances for depreciation of machinery from the existing 25% to cut business costs.
The government should come up with tax breaks, particularly for those investing overseas by November, so they become effective next year," he said.
(Source: Bangkok Post, business section, Inflows are likely to worsen, 28/10/2010, Chatrudee Theparat and Phusadee Arunmas, link)
mired - stuck in the mud, stuck in a bad situation you cannot get out of
sluggish - moving slowly
slump - when the economic growth rate is down and the economy is moving slowly, people and households suffer from lower incomes and unemployment
jumpstart - start something quickly (original: start a car from the battery of another car)
launching - starting, beginning
central bank - a government monetary authority in charge of monetary policy, issues currency, regulates supply of loans and credit, holds the reserves of other banks and foreign currencies (See Wikipedia)
monetary policy - the policy of the central bank in influencing the cost and availability of credit through interest rates and other measures, with the goals of promoting economic growth, full employment, price stability and balanced trade with other countries (See Wikipedia)
quantative easing - the monetary policy that the US central bank (the Fed) started using during the recent severe financial crisis, "describes a monetary policy used by some central banks to increase the supply of money by increasing the excess reserves of the banking system. This policy is usually invoked when the normal methods to control the money supply have failed, i.e the bank interest rate, discount rate and/or interbank interest rate are either at, or close to, zero" (See Wikipedia, an easy whiteboard video)
QE2 - Quantative Easing 2, the monetary policy that many believe the US central bank will follow in the near future (See recent Time magazine article and recent Wall Street Journal article)
monetary easing - same as "quantative easing"
predict - state or guess what you think will happen in the future
expected - believe will happen คาดว่า (จะเกิดขึ้น)
extend - to continue for a particular period of time or to add more time ยืดออกไป
stimulate - act so as to increase activity, encourage activity, growth, and development กระตุ้น (See glossary)
foreign capital inflows - money for investment in companies (stocks, bonds, etc) flowing into the country
massive - very large in size, amount or numberใหญ่โต
capital - money invested in a business (See glossary)
bond - something that gives people a reason to love one another or feel they have a duty to one another ผูกมัด
stabilise - to reach a state where there are no longer any major changes or problems ทำให้มีเสถียรภาพ
maintain - keep in good condition รักษา
competitiveness - how well a business can do compared to other firms (does it have lower price or higher quality?) การแข่งขัน
sector - a part of the economy (public sector = government, private sector = all businesses, household sector = families and consumers, banking sector,...) ภาคเศรษฐกิจของประเทศ (See Wikipedia)
former - was in this position in the past
finance - to provide money for something จัดหาเงินทุนให้
ministry - กระทรวง
finance ministry - กระทรวงการคลัง
minister - รัฐมนตรี
finance minister - the minister in the Prime Minister's cabinet that manages government spending, the budget and tax collection, putting a fiscal stimulus plan to restart the economy after a recession as well as controlling finances and minimizing corruption and waste are other duties (See Wikipedia) รัฐมนตรีว่าการกระทรวงการคลัง
cited - mentioned (to support a point you are making or arguing) กล่าวถึง'
curbed influx - stopped something coming into or flowing into some place (example: curbed the influx of flood water into the building)
equivalent - the same as เท่าเทียมกันกับ
soar - to rise very quickly to a high level มีความหวังสูง,พุ่งพรวดขึ้น
spur - to cause something to happen ก่อให้เกิด (See glossary)
forecast - a statement about what will happen in the future based on information available now พยากรณ์
interest - payments made for the use of another's money for a period of time
interest rate - the percentage of a borrowed amount you pay each year, as the price for using that money
generating - creating
pool - a large amount of something gathered together at one place, a concentration
liquidity - 1. the amount of cash and loans available in an economy, 2.the speed that an asset can be turned into cash (cash is 100% liquid, a savings account a little less, a time deposit a lot less) สภาพคล่อง
global - throughout the world ทั่วโลก
search - to look somewhere carefully in order to find something ค้นหา
yields - the amount of profit that an investor makes from investing their money
aware - knowing that something exists, or having knowledge or experience of a particular thing ทราบ
threat - a danger อันตราย
realise - to know about ตระหนัก รู้
impact - an effect or influence ผลกระทบ
index - stock market index, measures the overall price level of a group of stocks on the stock exchange, for example: all the stocks in a certain industry (See Wikipedia)
asset - something owned by a person, company etc., particularly money and property ทรัพย์สิน
asset price bubble - asset prices rise to unreasonably high levels given true asset values, investors make a lot of money, and are very enthusiastic about the market, then one day asset prices suddenly drop (the crash), investors lose a lot of money as well as their enthusiasm for the market, besides causing market instability, bubbles also have a negative effect on economies because they temporarily misallocate funds into non-optimal uses" and then quickly pull them out (See glossary)
speculation - buying an asset hoping that its price will go up and you will make money, it could go down with a loss of money, assuming the risk of loss in return for the uncertain possibility of a reward (See Wikipedia)
state - government รัฐ
measures - actions taken to deal with and solve a problem มาตราการ
stem - to stop something from increasing or spreading หยุดยั้ง,ยับยั้ง,สกัด
come up with - create
bond - a formal contract to repay borrowed money with interest at fixed intervals, a paper certificate is issued much like a stock certificate (See Wikipedia) พันธบัตร
long-term bonds - bonds with a long maturity
maturity - the length of a bond's life, the period of time that the loan of money in the bond exists (example: a bond with a 10 year maturity)
development - the gradual growth and formation of something
investment - taking your money and putting it into projects to make a profit or earn interest (buying stock shares, bonds, real estate)
revenue - income from taxes or business activities รายได้
losses incurred - money that a company has lost and that have been recorded in its accounting system and official financial reports
interventions - when the government enters a market to influence it
interventions by the Bank of Thailand - when the Thai central bank tries to control the value of the Thai baht by buying and selling the baht and other currencies
accelerate - to cause to happen more quickly, go faster at an increasing rate เร่ง
infrastructure - the high-cost facilities that everyone in the economy shares (water, roads, electricity, trains, telephone system, internet) สาธารณูปโภค
irrigation - the process of bringing water to land through a system of pipes, ditches, etc. in order to make crops grow ระบบชลประทาน (See Wikipedia)
expand - to become larger ขายตัวออกไป
productivity - producing more with the same amount of inputs (labour, energy, etc) การผลิตสินค้า
reserves - keeps something for a particular purpose or time in the future สงวน
foreign reserves - foreign money (currency) kept by the central bank of a country
permanent - happening or existing for a long time or for all time in the future ถาวร
permanent secretary - very high civil service position in a government ministry (not a "political appointee" who only serves in the position for as long as an elected government is in power)
urged - advised someone very strongly about what action should be taken วิงวอน
incentives - rewards for behaving in a certain manner สิ่งกระตุ้น, รางวัล, ผลตอบแทน
allowances - money given to people to help them pay for the things they need
tax allowance - an amount of money that can be subtracted from or taken off your taxes (pay less taxes, if you do something they want you to do)
depreciation - when things become less valuable over time
effective - solves the problem, actually works, producing the result that was intended ได้ผลดี
About the author
- Writer: Jon Fernquest
Position: Assistent Manager Educational services