Government should not mess with foreign exchange policy
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The government should allow market forces to dictate the value of the Thai baht rather than asking the Bank of Thailand to excessively intervene in the foreign exchange market to weaken the unit.
That’s the statement from Dhanin Chearavanont, chairman of Charoen Pokphand, or CP Group, who argues that the baht has gained strength due to an inflow of foreign funds into Thailand.
This has resulted in several benefits for the Thai economy. For example, a stronger baht has helped slow the rise of domestic retail oil prices, and has made machinery imports cheaper for industries to increase their productivity.
Previously, Kittirat Na Ranong, the deputy premier and finance minister, told the Bank of Thailand to adopt a weak baht policy to aid the export sector’s recovery.
However, BOT Governor Prasarn Trairatvorakul said the central bank’s policy is to avoid intervening excessively in foreign exchange markets.
The baht was trading at 31.01 per dollar late last week, compared to the previous close of 30.98 per dollar.
Prasarn said the country should avoid using exchange rates as a policy tool in managing the macro-economy. He cited the 1997 “Tom Yum Koong” financial crisis as an example in which free flow of capital, high interest rates and fixed exchange rates were a formula for disaster.
Over the past several years, the central bank has used “inflation targetting” as a major policy tool in managing the macro-economy.
Dhanin, one of the country’s most influential businessmen, shared the opinion that the current managed-float exchange rate regime, adopted following the 1997 financial crisis, should not be altered.
“If the baht had not strengthened, domestic oil prices could have topped Bt50 per litre by now, wreaking havoc on businesses and industries. If we allow the baht to weaken, and oil imports become much more expensive, businesses will be hit badly,” he said.
In his opinion, there are both winners and losers on exchange rates. Proponents of baht weakness such as Kittirat argue that a weaker currency will help exporters boost their shipments to international markets due to increased price competitiveness.
However, critics say exporters must also adapt to a stronger currency to stay competitive. Otherwise, they will lose competitiveness in the long run due to the lack of competitive pressures.
As a major exporter of food and other products, Dhanin admitted that a stronger baht will hurt the group’s short-term competitiveness in global markets, so he suggested that the government may consider helping specific export sectors which are directly hit by a stronger currency.
Dhanin is also an advocate of higher wages, especially the Pheu Thai Party’s policy of a Bt300-per-day minimum wage, which took effect on April 1.
Dhanin believes that higher minimum wages will lead to more disposable income among the majority of workers and thus stronger growth in the domestic economy.
This will allow Thailand to reduce dependence on the export sector, which currently accounts for more than 60 per cent of the country’s GDP.
Yet, it is also necessary to boost workers’ productivity to compensate for higher production and business costs as wages have gone up by a hefty 40 per cent in one fell swoop.
