Thailand is becoming a net-creditor nation

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Thailand becoming a net-creditor nation  
The Nation: 23 Nov 2009
Thailand is becoming a net-creditor nation
By Kessarin Tansuwanarat
Published on November 23, 2009


The latest figures for Thailand's net international-investment position (IIP) indicate it is approaching "net creditor" status.

Net IIP is the difference between a country's external assets and liabilities. In fact, IIP is like a balance sheet that shows the combined foreign financial-asset holdings of domestic residents and the combined domestic financial-asset holdings of foreign residents, usually at year-end.

Over the years, like many other emerging-market economies, Thailand has relied not only on foreign capital, but also on outside know-how and technology. As a result, external liabilities have built up faster than external assets.

Indeed, half of Thai liabilities have been foreign direct investment and loans concentrated mostly in the private non-banking sector. Meanwhile, most of Thailand's external assets have been in the public sector, predominantly in terms of foreign-currency reserves.

Recently, Thailand's net IIP showed a significant improvement. It reported a deficit of US$13.9 billion (Bt462 billion) at the end of last year, down markedly from a deficit of $56.1 billion at the end of 2007.

While the value of foreign-owned assets in Thailand exceeded that of Thai-owned assets abroad, the record-low deficit was due mainly to a strengthening external-asset position and a significant decline in external liabilities.

The increase in foreign assets owned by Thais was attributable to the gross reserve, now standing at $135.7 billion, and a sharp surge in Thai direct and portfolio investments abroad in response to more liberalised capital-outflow measures.

On the liability side, last year's significant decline in foreign holdings of domestic financial assets was caused by foreign investors' net selling in the Thai stock market, in line with the stock-market decline and fund withdrawals from Thai money markets on account of liquidity needs during the sub-prime crisis abroad.

High international reserves and acquisition of foreign assets by Thai businesses through direct investment abroad in key strategic industries and through portfolio investment in foreign debt and equity securities will soon turn Thailand into a net-creditor nation.

That said, an improvement in Thailand's overall IIP thus far has been driven mainly by the public sector, while a healthier long-term external position should come more from the private sector.

In the final analysis, one cannot say whether being a net creditor or a net debtor is better. In fact, a country's overall external position must be analysed in the context of the underlying fundamentals of the economy. A wealthy nation - one with tremendous growth prospects, high domestic savings and well-developed financial markets - could either rely on domestic sources of funding, thereby having low external liabilities, or be an attractive destination for foreign investments and end up with high external liabilities.

KESSARIN TANSUWANARAT is an economist with the Bank of Thailand's Monetary Policy Group.
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Experts differ on what is behind rises in gold, oil     
By Padej Piroonsit Published on November 23, 2009


Gold and oil prices have both been creeping upward over the past month, along with global stocks.

Market participants differ in their views about these upward price movements. One school of thought says the rise in prices of stocks, gold, oil and other commodities is a sign of economic recovery, while another says they are only symptoms of the present economic downturn.

Central banks around the world have injected liquidity into the market, in order to stimulate their economies, but they have done so with a credit market that is not fully functional. Therefore, excess liquidity is flowing to stock and commodity markets.

There is no common reason for each movement in those assets. Each asset class has its own fundamentals that justify its price movements.

Take the price of gold, for instance, which we believe is at a high level due to the diversification of US-dollar holdings. Readers may remember the Indian central bank recently bought a large amount of gold from the International Monetary Fund. That country, as well as China and Russia, has been calling for an alternative reserve currency. There is as yet no such alternative, so gold is a substitute.

For other commodities, liquidity is the major reason behind price movements. Analysts are chattering about possible asset bubbles, and should the economic fundamentals of commodities not justify their price levels, they will eventually lose their value.

On the domestic front, the baht has strengthened against the dollar over the past month, which is in line with other regional currencies. We believe the baht could strengthen further and test the 33 level soon, given the fact that Thailand's external balance is positive at the same time the dollar is weak.

However, movement of foreign-exchange rates is like that of commodity or stock prices in that it could go either way, and because of this we must adopt prudent risk management at all times.

PADEJ PIROONSIT is the head of Treasury sales at CIMB Thai Bank.