Baht takes big chunk off exporters' profit

Private-sector organisations have increasingly pressured the Bank of Thailand to take action to stem the baht’s rise, as exporters are being hit hard by the currency’s sharp rise against the US dollar since the beginning of the year.

Payungsak Chartsutipol, chairman of the Federation of Thai Industries (FTI), said: “The appreciation of the baht against the dollar has eroded the competitiveness of Thai exporters. Since the start of this year, the baht has gained 6-7 per cent, whereas our trading partners’ and competitors’ currencies gained far less or even dropped relative to the dollar.

“This means no profit for some Thai exporters or even losses if they did not have coverage for foreign-exchange risk, since profit margins are generally around 3-10 per cent depending on products and industries.

“In the first quarter of this year, Thai exports increased by just 4-5 per cent [year on year], less than the targeted 8-9 per cent. During their April 24 meeting, members of the FTI agreed to submit a five-point proposal to the Bank of Thailand to help manage the baht’s strength, and we held a meeting with BOT Governor Prasarn Trairatvorakul on April 30.

“First, we pointed out that the baht’s movement had been unusual because of a huge inflow of foreign capital to speculate on the currency. Second, we’re worried the country’s supply chains for industrial and consumer goods will be affected because it’s increasingly cheaper to import components or semi-finished goods from other countries as inputs for final products produced in Thailand for export sales.

“Third, there are unusual policies adopted by the major industrialised countries, especially the United States’ and Japan’s quantitative easing. 

The Japanese yen has for example depreciated sharply, by 15 per cent against the dollar. When the baht’s gains are included, the Japanese unit is now more than 20 per cent weaker compared with the baht.

“The FTI asked the BOT to reduce the policy interest rate by 1 percentage point from 2.75 to 1.75 to reduce the attractiveness of Thai bonds in the eyes of foreign investors whose cost of funds is very low, nearly zero.

“We also proposed capital-control measures and government bond issuance policies. We also reiterated our position that the baht ought to be moving in tandem with regional currencies in the Asean+3 grouping [including China, Japan and South Korea].

“Early this year, we talked about 30 baht per dollar and a stable exchange rate so we could formulate business plans.

 Now, the impacts are not just on small and medium-sized enterprises, but big industries like automotive or electronics will also be hit if the baht is as strong as 29 or 28 per dollar. Pickup trucks produced for export have local content of as much as 80-90 per cent, so that will be affected.

“I think the Bank of Thailand’s view on the impacts of the strong baht has been too optimistic. The private sector has been working hard to adjust to the exchange rate and other government policies, but there is a limit.

“We’re concerned that exports in the second and third quarters will be worse than in the first quarter, which was based on last year’s exchange rate. Hit hard are exporters whose profit margins are slim such as jewellery, garments, electronics, furniture and agricultural products.

“In the end, we don’t care which measures will be used to tackle the baht issue: We just want a moderate and stable exchange rate. Since April 24, the baht has weakened a bit to around 29.3 per dollar, down from the 16-year peak of 28.5.

“Speculation in the currency markets is a key factor. We told the BOT governor that we would have to see him again if the baht is back to 28-29. 

The BOT should not wait until the next Monetary Policy Meeting on May 29 if it is necessary to take action to prevent the baht issue from worsening.”