SURGING BAHT

Currency expected to keep rising against $

BOT sees gains despite exporters' outcry

The baht is likely to keep gaining against the US dollar as external factors remain gloomy, Bank of Thailand Governor Tarisa Watanagase warned yesterday, adding that the forecast current-account deficit for next year would however act as a drag on the rapid rise.

The picture does have a bright side, as the government's mega-infrastructure projects will benefit from cheaper imported materials in baht terms, she said.

Just how steeply the baht's value will climb depends largely on the US economy's adjustment and movements in regional currencies and oil prices, she said. The central bank said it would continue to oversee the baht to reduce volatility.

The baht yesterday closed at Bt35.55-Bt35.57 to the greenback.

Tarisa said the baht was heading up in line with regional currencies due to the weakening dollar and capital inflows into the country. But it was not appreciating as fast as other units such as the Malaysian ringgit.

Export associations have cried foul over the strengthening of the baht, saying their income has dropped sharply when their dollar sales are converted into baht.

Somsak Paneetatyasai, president of the Thai Shrimp Association, said the shrimp export industry could lose up to Bt10 billion from the pricier unit. He said if the baht had stayed at Bt41 - the level of early this year - shrimp exports would have come in at about Bt100 billion for the whole year.

"The central bank should be concerned about this. The volatility makes it difficult to gauge whether income will drop or rise and to set prices. The baht has strengthened much faster than our rivals' currencies, and this reduces our competitiveness," he said.

In the first 10 months, shrimp exports rose in volume by 25.13 per cent to 286,536 tonnes, and in value by 22.86 per cent to Bt71.38 billion. For the entire year, exports are expected to reach 340,000 tonnes worth at least Bt80 billion.

Agriculture permanent secretary Banphot Hongthong said the ministry was in the course of estimating the damage to the farm sector, particularly for rice, shrimp and chicken.

"As the baht is rising faster than other currencies, exporters may shift the burden to farmers. They may force down the prices of products purchased from farmers," he said.

Tarisa insisted that Thailand had not yet lost its competitiveness because the baht picked up 7 per cent in value over the last two years, which is in line with the 6-8 per cent appreciation of other regional currencies.

It has strengthened about 13 per cent this year, while other regional currencies have experienced less than 10 per cent.

"Over the past two years, our competitiveness remained relatively unchanged. The baht has just been strengthening rapidly over the last few months, causing panic among affected groups," she said.

Indonesia and the Philippines have also witnessed huge capital inflows but the Kingdom has attracted more foreign attention because economic fundamentals and political stability have been stronger here, causing the baht to soar far beyond neighbouring countries this year, she added.

China and Hong Kong have been cushioned from the onslaught of funds from Western countries because the yuan is fixed and the Hong Kong dollar is pegged. Singapore has strictly monitored its currency.

Tarisa said the central bank's policy interest rate worked on domestic inflation and economic growth, but not so much on cross-border shifts of capital. Cutting the interest rate might not slow down the capital inflows, and might even backfire by attracting additional funds due to the improvement in the economic-growth outlook with the lower cost of funds.

The central bank has stepped into the foreign-exchange market occasionally, but could not do much to buck the market trend amid global currency transactions worth US$1 trillion (Bt36 billion). Instead, the private sector should always manage their currency risk even when the baht is not fluctuating. They should cut their costs of production and boost productivity to maintain their edge, Tarisa said.

"The business sector has acted like 'fire burns straw', which the central bank doesn't want to see. They hedge the currency only when the baht is stronger, but neglect to do so when it is stable. The central bank can't use all money in the treasury to fight for the baht."

Anoma Srisukkasem

The Nation