Kingdom 'must rely on own strengths' amid euro crisis
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The European crisis could drag on for four or five years, driving down Thai exports and whipping up stock and bond markets, an academic said yesterday.
“The euro could be worthless paper as more money is unlikely to solve problems until troubled countries like Greece, Spain and Italy reform their economies,” said Sompop Manarungsan, president of the Panyapiwat Institute of Technology.
The European Central Bank will likely inject more money into the crisis countries in the euro zone, which will weaken the currency, while the US Federal Reserve may pump liquidity into Europe, since any trouble there would also hurt the US economy, he said.
Thailand’s exports will be buffeted by both the crisis in Europe and the slowdown of the global economy, he said. As the credit ratings of major banks in Europe have been downgraded by Moody’s Investors Service, trade finance will dry up.
Since Thailand’s exports in the first five months were still in negative territory, they need to expand by 30 per cent in the second half to achieve the Commerce Ministry’s growth target of 15 per cent for the full year. However, if the country can achieve export growth of 8-9 per cent, that will be all right, Sompop said.
The Bank of Thailand will face a challenge in managing capital flows, which are expected to be two-way. The likely scenario is more inflows than outflows. Swift inflows could have a devastating effect on the exchange rate and capital market, he said.
Private investors are wrong to ask the government to establish a fund to shore up stocks, as that would distort the market and the government would not have enough funds to intervene in the market, he said.
Thai authorities should watch whether the European crisis rattles Hong Kong and Singapore, which are the financial centres of Asia. Indonesia, which depends on bank loans from Europe, may also be in trouble, Sompop said.
India and Vietnam, with high inflation rates, would be unable to do much to boost their economies.
“Any impact on other countries in the region will also affect Thailand significantly,” he said.
However, Thailand’s fiscal position is strong thanks to treasury reserves of Bt500 billion and relatively low public debt. The country’s international reserves are also hefty.
“The biggest threat to Thailand is political conflict. If it escalates into violence, it will weaken the country,” he warned.
Thailand has to strive to become the hub of mainland Asean, as it could do well in logistics, road and air transport and communications, Sompop said.
“We must make Bangkok the capital of mainland Asean or the Mekong region.”
