Thai FM backs forex liberalisation plan

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Thai FM backs forex liberalisation plan 
The Nation: 30 Jan 2010
BANK OF THAILAND
Korn backs forex-liberalisation plan
By The Nation

Finance Minister Korn Chatikavanij supports the Bank of Thailand's plan to further liberalise the foreign-exchange market, saying it would help keep the baht at a competitive level.

"We don't want the baht to be unusually stronger than other regional currencies, as that would affect our exporters. The BOT's strategy should help to some extent, by not putting exporters at a disadvantage," he said yesterday.

"The issue of the baht strengthening and affecting exports has been discussed for some time, as exports are the country's main source of income. What can be done is to relax the rules to allow overseas investment. This should reduce the pressure on the baht," he said.

The Bank of Thailand on Monday will unveil measures to further relax the foreign-exchange market, making capital outflows easier.

The baht yesterday declined 0.2 per cent to 33.15 per US dollar as of 4.51pm in Bangkok, after earlier touching 33.24 - the weakest level since January 5 - according to data compiled by Bloomberg. The currency declined 0.5 per cent over the past week, the largest weekly fall since last February.

Nitinai Sirismatthakarn, Siam Commercial Bank's senior vice president for the Research Group, believes the time is ripe for the central bank to impose capital controls, as the open market has not been able to cope with excessive inflows.

Outstanding bonds issued by the BOT to absorb the liquidity stand at Bt1.79 trillion, and the central bank directly shoulders the debt burden.

"Capital control is an inevitable choice, as the central bank does not have many resources to intervene in the forex market," he said.

Nitinai said the central bank could either set conditions to control capital inflow or relax the rules to make it easier for capital to flow out of the country.

He said the former option could, however, negatively affect Thailand at a time when political stability is fragile.

SCBS Research said it believed relaxed outflow rules might not have much effect, as there were only a few business groups capable of making overseas investment.

Meanwhile, the strong baht has been attributed to the ballooning current-account surplus. According to BOT data released yesterday, the surplus stood at US$20.29 billion (Bt673 billion) last year, against just $1.63 billion in 2008.

The trade surplus was $19.41 billion, as exports dropped 13.9 per cent to $150.88 billion while imports plunged 24.9 per cent to $131.47 billion.

Imports fell due to poor business sentiment caused by the global crisis as well as domestic political conditions.

Suchart Sakkankosone, the central bank's senior director for the Domestic Economy Department, said private investment last year contracted 11.4 per cent, against a 2.9-per-cent expansion in 2008. Investment only picked up in December, expanding 1.3 per cent from the previous month.

Economic growth for 2009 is expected to come in at 2.7 per cent, he said.

BOT Deputy Governor Bandid Nijathaworn said positive growth in the agricultural, tourism, export and property sectors would further drive the economy.

His team plans a brainstorming session with operators in the four sectors on opportunities and obstacles, and the results will be presented to the Monetary Policy Committee.

Satit Rungkasiri, director-general of the Fiscal Policy Office, said at the FPO Forum yesterday that despite the fast pace of economic recovery, Thailand was facing risks.

While economic growth may be boosted by the government's stimulus policy, the Asean Free Trade Agreement will intensify regional competition. Oil prices are also on the rise, increasing volatility in the currency market and commodity prices.

He also emphasised the need for private companies to adapt, particularly in terms of adding value to their products and addressing financial risks.

With private investment having dropped mainly because of the Map Ta Phut crisis, Korn will lead a team to Japan in mid-March to address Japanese investors' concerns.

As "Team Thailand" leader, the finance minister said he wanted to demonstrate to investors the government's focus in balancing economic development and environmental and human-rights protection.

Ministerial officials will join the Japan roadshow.