FTI urges prompt move on baht as export competitiveness hit

The measures include the setting up of a fund worth between Bt5 billion and Bt10 billion to provide low-interest loans to small and medium-sized enterprises whose liquidity has been impacted by the baht’s strength. 

FTI secretary-general Thanit Sorat said the federation was also urging the BOT to secure the baht’s stability and see that it was in line with other currencies in the region. 

The unit’s substantial appreciation since the beginning of the year has eliminated the competitiveness of Thai exporters when compared to their rivals in neighbouring markets, he said.

The central bank should, therefore, have measures in place to manage the flow of capital, such as tax collection on such inflows from abroad, which would be aimed at reining in short-term speculation. 

However, such a tax measure would need to be carefully adopted and not negatively affect the capital market, he added.

The FTI also believes the BOT should reduce the policy interest rate as an instrument to manage the capital inflow. The policy rate should be reduced to 2 per cent from the current 2.75 per cent, it proposes. 

The federation cites the fact that the Thai policy rate is markedly higher than those in other countries, such as Malaysia and Taiwan (both 1.5 per cent), the US (1 per cent), the euro zone (0.75 per cent) and Japan (0.01 per cent).

 

Help for SMEs

The government and the BOT should provide support to local entrepreneurs, especially SMEs, which have financial limitations, in adopting risk protection against the exchange rate, the FTI said.

The central bank and the Finance Ministry are being urged to support SMEs in grouping together for baht pledging, while financial institutions should reduce their transaction fees to assist SMEs. 

In addition, exporters should be allowed to open letters of credit in baht in order reduce their exchange-rate risk, the FTI proposes.

Pisit Puapan, director of the Macroeconomic Analysis Division at the Finance Ministry’s Fiscal Policy Office, said the baht had appreciated 6.6 per cent against the US dollar so far this year, and the trend was for it to strengthen even further. 

The BOT is responsible for looking after exchange-rate matters, while the Finance Ministry will seek to help the private sector through government-owned financial institutions, such as the Export-Import Bank of Thailand, the Small and Medium Enterprise Development Bank of Thailand, and Krung Thai Bank, he said. 

These banks have assisted SMEs in conducting forward contracts, which are still below target.

Within the next one to three years, currencies throughout the region will tend to remain strong, he added.

The government and the private sector need to establish a plan on how to tackle the baht if it were to appreciate yet further, the official said. 

The government plans to invest in the Bt2-trillion infrastructure project, and the Finance Ministry has anticipated that about 40 per cent of the investment will be for the import of machinery and materials. 

The government will, moreover, benefit from a strong baht if the repayment of foreign debt is quickened, while for the private sector, it should facilitate companies’ use of capital out for overseas investments, he said.

Kobsak Pootrakool, executive vice president of Bangkok Bank, said the baht had weakened to 29.40 against the US dollar at the end of last week as investors expected the government to launch serious measures to tackle the exchange rate, besides which there was a rumour of market intervention. 

However, looking to the next two to three years, the economies of Asia, including Asean, will still be expanding and, with excess liquidity available due to the easing fiscal policy in both the US and Japan, there will be a flow of investment capital into the region for currency-speculation purposes.

This will impact on exchange rates throughout the region, he said. 

“The BOT has not yet made any full intervention in the exchange rate, looking at the stability or slight decline of the international reserve, despite the strong appreciation of the baht. However, if the central bank wants to intervene in the exchange rate, it has to do it now as the depreciation of the baht last week was in contrast with other currencies in the region, which started to appreciate,” he added.

Banluesak Pussarangsi, executive vice president of CIMB Thai Bank, said a sizable reduction in the policy rate would achieve more than merely tackling the strong baht. 

A reduction of 1 percentage point might result in some depreciation of the currency, but if the rate were slashed by 2 percentage points to just 0.75 per cent, it would also address the bubble problem in the property sector and the Kingdom’s high public debt, he said. 

The policy rate is, however, expected to decline in the long term as the government will borrow Bt2 trillion to find its infrastructure projects, he added.

Padcha Wuthipan, an academic at the International Trade Promotion Department of the Commerce Ministry, said the rapid appreciation of the baht had had impacted the country’s export sector and it was wrong to put the responsibility for dealing with the problem solely on the shoulders of the BOT.

The establishment of an appropriate fiscal policy and the reduction of the policy rate should be considered extremely carefully by all concerned, Padcha said.