The Precarious Baht
Why Is Thailand's Currency So Strong and What Does It Mean?
Analysis of why the Thai baht and stock exchange figures remain so high when government policies are so poor and discussions of the implications of this.
Since the military coup of September 19th, 2006, the interim junta-appointed government has made a bit of a mess of the economy. Anti-investor measures, sudden u-turns, refusal to listen to advice and general lack of understanding of a modern, complex, diversified economy have been accompanied by massive increases in power for the military and repression of free speech and freedom of association. And yet, top line measures appear to show that the Thai economy is actually doing well. After all, the national currency, the baht, is at record high levels and the Stock Exchange of Thailand (SET) has recently been pushing up to unprecedented highs, in common with a number of other East Asian bourses. Why is this happening?
In terms of the baht, it is clear that foreign money is flowing into the country at a rapid rate to support it, damaging export prospects at the same time. Exactly where this money is coming from is not clear but at least some is from foreign investors circumventing the capital controls enforced by the ‘government.’ Secondly, there has been a long-term managed slide of the American dollar, partly resulting from lack of confidence in the American economy sparked by the imminent housing crisis and the disastrous foreign policy. The slide is intensified by the desire of American authorities to reduce the value of the massive trade surpluses held by countries such as China, which are denominated in dollars. At the same time, holders of those reserves are spending money to ensure that they are not downgraded too severely. The result is that the baht, as well as other currencies, are turning into battlegrounds and there are now genuine fears that attacks on the baht will trigger another financial crisis, one decade after the Tom Yum Gung crisis of 1997.
The impact of the high level of the baht has already scared off a number of potential investors: Japanese firms are increasingly choosing Vietnam or China over Thailand, while domestic firms are also relocating their low-cost manufacturing operations overseas. There have been reports of 300,000 jobs at threat in the textiles and garments industry because the exports of these products are no longer competitive because of the high baht. 109 small textiles factories have already closed down and there were thousands of workers on the streets after the Thai Silp company suddenly closed its doors, apparently in the effort to avoid severance payments to the workers. While the ‘government’ remains unaccountable, things will surely get worse before they get better.
