Thailand’s plan to ease restrictions on fund outflows may not be enough to stem an appreciation in the baht that threatens to slow growth in overseas shipments, exporters and trade groups said.
The central bank will allow companies to invest and lend more abroad and give them more flexibility when repatriating overseas earnings, moves aimed at alleviating pressure for the baht to appreciate from its strongest level in 13 years.
Governor Tarisa Watanagase has so far resisted calls to introduce controls on fund inflows, saying yesterday that existing measures to curb volatility are sufficient. Policy makers including Commerce Minister Porntiva Nakasai have urged more aggressive action amid concern the baht’s strength will crimp exports that account for about two-thirds of the economy.
“We want some measures with a short-term impact, like taxing the inflows or giving minimum periods they need to keep the money here,” Thanit Sorat, vice chairman of the Federation of Thai Industries, said yesterday. “We don’t want strong medicine like in 2006, but we want something to discourage speculators.”
Thailand last imposed limits on fund inflows in December 2006 to slow baht gains and protect exporters, a measure that led to a divergence between the onshore traded value of the currency and the offshore rate. The move also spurred the benchmark stock index’s biggest slide in 16 years.
Central Bank Intervention
The baht has advanced 8.5 percent this year, the second-best performer among the 10 most actively-traded currencies in Asia excluding Japan, as an export-led economic recovery encouraged overseas investors to pour $741.3 million into Thailand’s equities market.
Finance Minister Korn Chatikavanij said last week that Thailand’s rising currency reserves show that the central bank has already been buying dollars to curb volatility in the baht.
Tarisa said this month that the Bank of Thailand only intervenes in the currency to smooth volatility, and doesn’t attempt to control the baht’s level against the U.S. dollar.
Thailand’s foreign reserves grew by $19.23 billion to $157.63 billion in the eight months through August, according to data compiled by Bloomberg. The nation’s trade surplus over the same period was $6.08 billion, according to customs data.
Prime Minister Abhisit Vejjajiva said today the government will take advantage of the baht’s strength to repay some debt, adding that it’s a good time for Thai companies to import equipment to upgrade their local operations.
Rice Shipments Slump
The pace of the currency’s appreciation has made it difficult for exporters to hedge their currency risk, said Chookiat Ophaswongse, former president of the Thai Rice Exporters Association.
Thailand’s rice exporters, the world’s biggest shippers of the grain, are already hurting. Rice exports fell 19 percent last month because of price competition and the stronger baht, the commerce ministry said on Sept. 20.
“The situation is worrisome,” said Chookiat, who is an adviser to the association. “We have cut costs in all possible ways. When the currency factor is counted in, it is very difficult for us to compete.”
The finance ministry this month approved a plan to scrap a ceiling on direct investment and lending by firms to affiliated companies overseas, as part of a package of measures to promote fund outflows.
“The measures may be soft, but they are better than nothing,” Dusit Nontanakorn, chairman of the Thai Chamber of Commerce, said in a telephone interview. “At least there are some proposals coming out.”
A survey conducted last month by the Federation of Thai Industries showed more than 80 percent of companies have been affected by the baht’s appreciation, most acutely in the agricultural industry.
Japanese companies operating in Thailand used an average exchange rate estimate of 33.04 baht per dollar when drawing up their business plans, according to a survey of 375 respondents conducted in May and June by the local Japan Chamber of Commerce. That’s 7.2 percent weaker than the baht’s exchange rate of 30.67 as of 3:09 p.m. in Bangkok.
“A sharp appreciation in the baht will impose a big negative impact on the export sector,” said Nobuyuki Murahashi, President of Mitsubishi Motors (Thailand) Co. “We expect the government and the central bank to take measures when needed against any sharp appreciation in the baht.” The company exports 80 percent of its production in Thailand.
“The biggest concern is small and medium-sized businesses,” Abhisit said today. “The government is considering some measures to help them.”
Ford, Mitsubishi Motors
Thailand’s exports increased 23.9 percent to $16.5 billion in August from a year earlier, after rising 20.6 percent the previous month, customs data this week showed. The central bank said on July 23 it predicts gross domestic product will grow as much as 7.5 percent in 2010, the fastest pace in 15 years.
Companies including Mitsubishi Motors and Ford Motor Co. said that while the baht’s appreciation this year has increased costs in the short term, currency gains won’t derail longer term investment plans in Thailand.
“Thailand serves as a global production and export base for Ford, so a further strengthening of the baht would obviously increase our costs,” said Vas Srinivasan, the company’s vice president of finance for the Southeast Asian region. “Our investments in Thailand, as with any market around the world, are based on a long-term outlook and are not influenced by short-term currency fluctuations.”