2 replies to this topic

[Hedda]

Anyone who reads the Thai papers these days know that the Thais are running scared that their economy is going to melt down in the heat of the baht's rise in value. The men in military tanks who have been running the show for the past 10 months don't have a clue how to deal with the problem and the bureaucrats they installed as their token civilian government aren't much better off.

It's almost amusing to see these guys running from the Bank of Thailand to the Finance Ministry to the Cabinet, and back again, trying to create the impression that bodies in motion must be getting something done. It's all an illusion, of course, because in the final analysis, the Thais can do very little to control the baht's rise or fall in the international currency markets. Their fate in the global economy is sealed.

It's curious that, while the Thais are upset because the baht is too strong, the Americans are crying that the dollar is too weak. Why such a radical difference of opinion on which way the national currency should be heading ?

The difference is that the Thais have done too little in the recent past to try and develop an economy that does not rely so heavily on exporting things to other nations. As a result, there is no real consumer economy here that's large enough to keep everyone happy and fed on domestic demand. That's why an estimated 60-70% of the Thai national income relies on selling exports overseas.

The Americans, on the other hand, have been running huge trade deficits with most every nation in the world for too long, buying imports far more than they sell American-made goods and services overseas. Unlike the Thai economy, the American model has become based on the engine of consumer consumption, with cheap imports for fodder.

Obviously, when you rely like the Thais on selling good overseas to make a living, you want your prices to be low, especially when you have a huge neighbor like China, with much cheaper labor costs and a much cheaper currency. The Chinese don't much care if jobs and prosperity in rural China are being created at the expense of SE Asian competitors like Thailand.

Indeed, if you ask yourself who has most to gain by the rapid appreciateion of the Thai baht, the answer would seem to be China and its low-cost producers. It's the cheap Chinese Yuan that's killing Thailand's export economy, competing for those overseas markets.

The looming threat of China may be one of the reasons why the Bank of Thailand is so reluctant to actively defend the baht in the open currency markets. Thailand's has a paltry 70 million US dollars in foreign currency reserves, compared to China's estimated one trillion. If China were ever to become the source of currency speculation in "thin" currencies like the baht, the Thai central bank would find itself hopelessly outgunned in any auction.

No doubt, the folks running things in Bangkok remember the last time the BOT went to the wall to defend the baht in the currency market in 1997, when they literally bankrupted the Thai treasury and economy in the process. They are not likely to do that again, considering the vast amounts of money that may now be arrayed against them in any renewed currency war.

Don't get me wrong. I have no idea what role, if any, the Chinese may be quietly playing in fueling this insatiable demand to buy bahts. Clearly, however. they are profiting from the phenomenon. The sad reality is that, regardless of what role China may have in currency trading, there is virtually nothing positive the Thais can do to stop the world markets from playing the baht like a fiddle.
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[luvthai]

I am afraid that the bahts rise cannot be controlled for long at this point. Too many factors causing it to go unchecked. It might have to crashed again before they can really get a handle on the controls. As always the thai poor are the ones that will suffer the most.

[TheYenta]

What's over-the-top to me is the Thai business men and politicians who keep calling for the BOT to lower interest rates another 1-2 points. That would place interest rates below current inflation rates. How do you lend money and make a profit that way ?