Strong baht offers a chance for an economic shakeup
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The baht may have strengthened a bit too much, too soon, but both the Bank of Thailand and the Finance Ministry seem to have taken it in stride. This, to all intents and purposes, isn't anything near a "crisis". In fact, it may provide a rare opportuni
Central-bank governor Prasarn Trairatvorakul says the rapid appreciation of the baht over the past few weeks underscores improved sentiment in the Thai economy in comparison to others in East and Southeast Asia.
Finance Minister Kittirat na Ranong, offering assurances that the currency won’t hit Bt27 to the US dollar, affirmed that no capital-control measures will be imposed – a move that could well make things worse.
A number of economists have noted that the central bank’s clear message is that the private sector will have to learn how to adjust to the exchange-rate fluctuations, and Thai exporters will have to take on the burden of resorting to hedging contracts.
Barclays Capital analysts have expressed confidence that the Thai economic fundamentals are strong enough to shoulder the burden of the strengthening currency. The baht’s appreciation of 4.5 per cent against the dollar isn’t considered significant.
“The baht’s appreciation of more than 20 per cent against the yen over the past six months has been a strong positive, given that imports from Japan account for 7 per cent of gross domestic product. Moreover, as an important part of the Japanese automotive sector’s supply chain, lower import prices support corporate profitability and make re-exporting more competitive,” the Barclays Capital report says.
But exporters are complaining bitterly, and calls for the central bank to intervene before “disaster” strikes have been heard from various quarters. In fact, this is a traditional “call for action” from the country’s exporters every time the baht goes north, as if only a weak baht can keep the Thai economy going.
Politicians voicing similar concerns on behalf of businessmen tend to look at the short-term effects of almost every phenomenon. Long-term vision and planning aren’t their forte, and because of that, the public debate on the issue tends to be one-sided, reflecting only exporters’ worries rather than seizing the opportunity to embark on the long-overdue need for structural adjustment. Critics say Thailand should switch from its long-entrenched dependence on exports to an economy that can shift to a more robust domestic market.
There are certainly losers and winners when the baht gets stronger. A strengthening baht no doubt hurts exporters, but investors and importers stand to gain. It’s well known that those who stand to gain when the baht becomes stronger do not usually shout about it in public. When all is said and done, do exporters’ losses exceed importers’ gains? Nobody can say for sure, but the country would stand to gain in the longer term if the government is capable of convincing the public to take advantage of what appears to be a “big problem”.
A stressful time could be transformed into a major turning point. A stronger baht should convince the public and private sectors alike that a major, much-needed structural adjustment in the Thai economy can now be undertaken.
The cost of central-bank intervention to keep the baht weak in order to prop up exports is outweighed by the investment in upgrading machinery and production facilities brought by a stronger baht.
A new long-term vision may be necessary if Thailand is to undergo the major transformation from an export-dependent country to one that drives growth through technology and innovation. An overhaul of the country’s infrastructure and a major push for private-sector investment while the Thai currency strengthens would be timely and offer long-lasting and sustainable opportunities.
But such a major and crucial shift can come about only with strong political will and vision at the top, which unfortunately are sorely lacking. Hence the confusing signals we receive as golden opportunities slip by.
