Baht's Gains Can Be `Managed' to Reduce Volatility, Finance Minister Says

Thailand faces a “challenge” as gains in the baht are making its exports less competitive and it can try to reduce volatility in the currency, Finance Minister Korn Chatikavanij said.

“We can try to manage it so there’s no excessive volatility,” Chatikavanij said yesterday in an interview in Washington. “I don’t think a country like ours can forcibly change the fundamental direction of our currency.”

The baht’s 11 percent gain this year, the largest among Asia’s 10 most-traded currencies outside Japan, has raised concern that overseas shipments, accounting for almost two- thirds of Thailand’s economy, may slow. Prime Minister Abhisit Vejjajiva said this week that Thailand “might do more” such as relax limits on money outflows and boost support for exporters.

Still, the baht’s appreciation is a “happy problem,” Chatikavanij said, reflecting the country’s rapid recovery and economic strength even as it means goods made in Thailand become more expensive for overseas buyers.

The Bank of Thailand last month said it only intervenes in the currency markets to smooth volatility, and doesn’t attempt to control the baht’s level. The baht gained beyond 30 against the dollar on Oct. 6 for the first time since July 1997, the year the local currency’s devaluation triggered the Asian financial crisis.

Foreign Capital

Thailand has become a “haven” for inflows of foreign capital, which has caused the baht to rise, Chatikavanij said in a speech yesterday at the annual meeting of the Institute of International Finance in Washington. The currency increase is “a challenge in terms of how we can adjust our exports sector to the fact that we are becoming less price competitive,” he said.

Currency gains pose “a particular challenge” to members of the Association of Southeast Asian Nations that are heavily dependent on exports, he said.

Countries from Brazil to South Korea have taken steps to cool currency appreciation amid rising capital inflows. The effect of the dollar’s weakness on Asian trade also spurred Japan to intervene last month for the first time in six years to restrain the yen, while China is resisting calls to let the yuan rise faster.

Policy makers attending the International Monetary Fund’s annual meeting have expressed concern that efforts to boost exports by embracing weaker currencies threatened to provoke protectionism and trade imbalances at a time when economic growth is already slowing.

“The way to do this is for large countries to sit down together and have an agreement” on solutions to the currency issue, Chatikavanij said in the interview. “That’s not done unilaterally.”

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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