The Bank of Thailand expects the strong baht and widespread flooding to have a minimal impact on the economy in 2011, while the Finance Ministry has forecast 7.3% growth in GDP this year after taking into account those factors.

Paiboon Kittisrikangwan, assistant governor for the Monetary Policy Group, said local exporters had been able to cope with the baht’s gains by taking steps to protect against loss. The hedging ratio increased to 43% of total income in September from 35% in August.

Slowing advanced economies, rather than the strengthening baht, would be the key factor for a decline in export growth into 2011,

said Mr Paiboon.

He said local business operators had also increasingly shifted settlement currency to other currencies as the dollar weakened. They also shortened the maturity of orders to three months or shorter from the typical six months.

“That some shippers are capable of bargaining for a better price and are expanding capacity helped to compensate for the impact of currency exchange loss on the overall economy,”

he said.

“We believe exports are capable of growth in 2011. A strengthening currency is a regional phenomenon.”

The central bank’s nominal effective exchange rate calculated by the Bank for International Settlements showed the baht had strengthened 6.5% for the year to date against the dollar when weighed against trade partners.

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BoT lifts GDP forecast

In order to ensure Thailand’s competitiveness in the near future, Thailand needs to improve its productivity and investment climate. Experience from countries that have managed to increase productivity and rise up the value chain such as South Korea and Taiwan have shown that productivity improvements at the national level are achievable with a concerted efforts by the private sector, government, and academia.

Government in Thailand should take measures to improve the country’s investment climate such as streamlining the regulatory environment and improving public infrastructure which will help stimulate private investments as they help to reduce operating costs for firms

So far, two tranches of the TKK Program (2009-2012) worth Bt350 billion (US$10.5 billion) have been released, with the first tranche in the amount of Bt200 billion and the second tranche of Bt150 billion.

The focus of the TKK Program so far has been on quick disbursing investment projects as well as transfers and subsidies to local governments, communities, and farmers. A large share of the package is allocated to the agriculture and education sectors and community spending. Around two-thirds of the Bt350 billion or Bt230 billion is to be used for construction and equipment purchase, of which around three-quarters or Bt175 billion (1.9 percent of GDP) is expected to be disbursed in 2010, thus contributing to public investment.

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