Bank of Thailand Meets Industry Leaders Over Baht Strength and Trade War Fallout

 

The Bank of Thailand (BOT) has held its first formal consultation with the Federation of Thai Industries to address mounting concerns over the appreciating baht, credit restrictions on small businesses and the impact of US trade tariffs on exporters.

 

BOT Governor Vitai Ratanakorn led a team of senior officials in Tuesday's meeting with FTI members, marking a significant shift in the central bank's engagement with the private sector amid growing economic headwinds.

 

"Today I brought the entire team to seriously listen to problems and opinions for working together," Vitai said before the consultation. "For matters that the BOT can act on immediately, we will expedite action. For issues that are stuck or require comprehensive consideration, we will take them up with relevant agencies."

 

FTI Chairman Kriengkrai Thiennukul described the meeting as a "good omen" for cooperation between the central bank and business community, which he said would help bridge communication gaps and build mutual understanding.

 

 

Vitai outlined the BOT's three core mandates: maintaining financial stability with low and stable medium-term inflation; ensuring the strength and resilience of financial institutions to serve borrowers continuously; and overseeing an efficient payment system that meets the needs of citizens, businesses and government with convenience, speed, safety and reasonable costs.

 

"Today we are at a point where we see the structural economic problems in the same way, and we will consult together to find ways to prevent and solve problems in the same direction, to help the economy grow at an appropriate level whilst maintaining the country's economic and financial stability," he said.

 

The discussion covered five structural problems and eight current issues, but FTI emphasised three urgent matters requiring immediate attention: the impact of trade wars, vulnerable SMEs facing credit cuts, and the strong baht.

 

 

 

US trade war spillover

FTI Vice Chairman Nava Chantanasurakon outlined the industries' concerns about inconsistent US tariff enforcement, with some products already subject to duties whilst others remain under investigation.

 

Industries already affected include steel, aluminium, automotive and parts, plywood, thin wood and sheet materials, and furniture.

 

Import-dependent sectors facing pressure include steel, aluminium, metal casting, machinery and automation systems, and electrical and electronics.

 

Research from the Thailand Development Research Institute paints a sobering picture of potential GDP impacts under different competitiveness scenarios:

 

• Worst case (unable to compete): Thai GDP could contract by 0.77%, with exports to the US falling 15.4%, global export market share declining 0.9%, and total exports dropping 2.6%

• Moderate case (limited competitiveness): GDP could fall 0.42%, US exports down 13.9%, and total exports declining 1.37%

• Best case (able to compete): GDP would decline just 0.01%, with US exports down 12.53% but offset by expansion into other regional markets

 

Nava proposed that the government provide comprehensive economic impact data to help businesses prepare effectively for US trade measures.

 

He urged financial measures to support business transformation and supply chain restructuring whilst helping firms find new markets to diversify trade risks.

 

 

 

FTI called for relief measures during the adjustment period, including postponing the classification of loans as non-performing, restructuring credit for those affected by US tariffs, and providing low-interest loans to enhance liquidity.

 

These special credit facilities should help affected businesses adjust operations and restructure supply chains to comply with US regional value content (RVC) requirements, whilst supporting firms seeking to boost production capacity for new export markets beyond the United States.

 

 

 

SME credit crunch and proposed solutions

Small and medium enterprises, which comprise the majority of FTI membership, face widespread credit cuts as banks tighten lending to sectors expected to be hit by tariffs.

 

FTI vice chairman Apichit Prasoprat said feedback from members across all five regions revealed that most operators' main problems stem from lack of knowledge, skills, innovation, specialist personnel and investment capital.

 

FTI proposed targeted low-interest credit measures, allowing commercial banks to access special-rate funding from the BOT if they lend to priority SME groups such as exporters, innovators or green businesses.

 

 

The federation called for creating an "alternative credit system" through a central platform development, enabling financial institutions to assess risk more accurately using data from e-commerce sales, VAT payments, and utility bill payments.

 

FTI urged support for loans facilitating transition to "green and digital business" with special low-interest credit at 2% for SMEs investing in clean energy, carbon reduction, automation systems or digital transformation, with relaxed criteria to stimulate investment.

 

FTI called for establishing an "SME Fund" to design diverse financial products, reduce collateral barriers and complex procedures, offer appropriate interest rates or fees, and allow revolving funds to help other SMEs whilst efficiently managing non-performing loans (NPLs).

 

 

 

Baht appreciation concerns

The Thai baht's strength remains the most pressing concern for exporters and tourism operators, who together account for 70% of GDP — 60% from exports and over 10% from tourism.

 

Nava told the meeting that the baht had appreciated 5.7% year-to-date as of 6 October, strengthening more than regional competitors including Vietnam, Indonesia, the Philippines and China.

 

The baht reached its strongest level at 31.58 per dollar on 9 September before weakening slightly in early October. In September alone, the baht strengthened by 5.31%, forcing exporters to implement careful exchange rate risk management strategies.

 

"Earlier this year, the baht strengthened by more than 7%, whilst our direct regional competitor Vietnam's currency weakened by more than 3%," Kriengkrai said. "The gap between Thailand and competitors is nearly 10%, making Thai products unable to compete in the same markets."

 

The strong baht has also deterred tourists, with visitor numbers declining whilst Vietnam has seen increases, according to FTI.

 

 

 

Kriengkrai stressed that with the country depending on exports for 60% of GDP and tourism for 10%, excessive baht strength creates immediate pressure on export sectors by making products more expensive, whilst also damaging tourism.

 

"We must find a balance to adjust the baht so it doesn't strengthen too much," he said, noting a lack of "connecting the dots" between agencies responsible for activities affecting the baht, including the BOT, the Ministry of Commerce, the Securities and Exchange Commission, the Customs Department, and the Anti-Money Laundering Office.

 

 

 

Exporters seek 34-35 baht per dollar

FTI called for the baht to weaken to 34-35 per dollar to restore export competitiveness, particularly as competing countries face reciprocal tariff measures.

 

The federation raised concerns about "unnatural" factors affecting the baht, including:

• Gold trading: Thailand's gold exports to Cambodia surged to 71 billion baht in the first seven months of 2024, up from 12 billion baht in 2023, which FTI described as unusual

• Cryptocurrency: An uncontrolled factor disrupting currency stability

• Money laundering and grey money: FTI warned that Thailand risks becoming a money-laundering hub, with better control potentially stabilising the baht

 

Kriengkrai acknowledged that Vitai cited constraints on currency intervention due to US monitoring of potential currency manipulation.

 

However, FTI proposed maintaining baht stability to preserve competitiveness by ensuring the currency doesn't fluctuate excessively or strengthen beyond regional competitors, whilst promoting use of foreign exchange hedging tools, especially for SMEs.

 

Meanwhile, FTI urged the BOT to prioritise Made-in-Thailand (MIT) products in its procurement under the Government Procurement Act and to encourage the Export-Import Bank to provide soft loans to MIT manufacturers entering new export markets.

 

The federation is pushing for government agencies to allocate 15% of procurement to MIT products by 2025, rising to 30% and eventually 50%, which would create jobs and strengthen SMEs.

 

 

 

 

Government stimulus measures win praise

Apichit praised the government's "Khon La Khrueng Plus" co-payment scheme, noting that all 20 million allocated rights were quickly claimed and many new merchants registered to participate.

 

Despite concerns about potential circumvention through imported goods, he said the programme had achieved its aim of stimulating the economy, with an 80% success rate in terms of overall impact.

 

Kriengkrai also commended the government's "Quick Big Win" measures implemented over the past four months, including diesel price reductions of 50 satang per litre, petrol cuts of 30 satang, and support for residential solar power.

 

These measures aim to push fourth-quarter GDP growth to 1% from a feared 0.3%.

 

 

 

Structural reforms needed

Beyond the three urgent issues, FTI highlighted five structural problems requiring long-term attention:

• Outdated laws — more than 100,000 obsolete regulations that create hidden costs and corruption risks
• Education system deficiencies
• Ageing society with declining birth rates
• Various forms of inequality

 

FTI outlined its "4G" policy framework for industrial transformation: Go Digital AI, Go Innovation, Go Global, and Go Green. The federation wants the BOT to consider these strategic priorities when planning financial sector support, particularly for SMEs preparing for business transformation.

 

 

 

Commitment to ongoing dialogue

Vitai pledged to maintain regular consultations with the private sector to monitor developments and address problems on an ongoing basis.

 

"The BOT aims to maintain baht stability in line with fundamental economic factors and prevent excessive volatility that would impact the business sector," he said. "We are committed to working with all relevant sectors to mitigate impacts and push forward various measures to support sustainable growth of the Thai economy."

 

Kriengkrai said the BOT had also tasked FTI with coordinating with other government agencies beyond the central bank's remit to strengthen integration between state and private sector operations.

 

With Prime Minister Anutin Charnvirakul's government having been in office for just four months, FTI expressed hope for positive progress on the three urgent issues within this timeframe.