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Foreign reserves up 29%, to 142 billion USD in 2009

Thailand’s foreign reserves of US$142.4 billion at end-2009 represented a 28.61 per cent increase from the previous year, or about $31.68 billion. The Bank of Thailand attributed the increase to foreign assets, 27.53 per cent to $137.6 trillion as of January. Gold value stood at $2.9 billion.

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Thailand’s foreign reserves of US$142.4 billion at end-2009 represented a 28.61 per cent increase from the previous year, or about $31.68 billion. The Bank of Thailand attributed the increase to foreign assets, 27.53 per cent to $137.6 trillion as of January. Gold value stood at $2.9 billion.

Foreign assets held or controlled by the central bank which are readily available for financing the balance of payments imbalances or to be used as a tool in carrying out exchange rate policy. International reserves consists of monetary gold, special drawing rights (SDRs), reserve positions in the Fund, and foreign exchange assets.

JAN 2010 DEC 2009 NOV 2009 OCT 2009 SEP 2009
(Millions of US Dollars)
Gold 2,910.45 2,934.74 3,172.90 2,806.56 2,687.14
SDRs 1,509.87 1,522.98 1,564.26 1,544.35 1,538.99
Reserve position in the IMF 357.57 360.68 370.45 365.79 364.52
Foreign currency reserves 137,625 133,599 134,720 130,540 127,165
Total 142,403 138,417 139,828 135,257 131,755

Definition

According to the International Monetary Fund, foreign exchange reserves are defined in the Balance of Payments manual (5thedition) as

“Those external assets that are readily available to and controlled by monetary authorities for direct financing of payments imbalances, for indirectly regulating the magnitudes of imbalances through intervention in exchange markets to affect the currency exchange rate, and/or for other purposes”

Purposes for Holding Official Foreign Reserves of Thailand

1.      To fulfill the monetary and exchange rate policies

2.      To  store of nation’s wealth

3.      To give credibility to foreign investors

4.      To back the banknotes in use

In order to achieve all the aforementioned objectives, The Bank of Thailand manages the official reserves according to the following 3 guiding principles as follows

1.      Security –preservation of reserves values

2.      Liquidity- able to meet the objectives of exchange rate and monetary policies

3.      Returns- to maximize the returns within the given guidelines

Sources of Official Foreign Reserves

1.      Balance of payment Surplus: The Balance of Payments consists of the current account and the capital account. Under the managed floating exchange rate, surpluses will lead to increases in foreign exchange holdings when the central bank intervenes by buying the foreign currency.

2.      Returns from management of official reserves: Returns from interest payments and the change in principal values of assets

Public investment will expand only slightly next year as the Thai Kem Kaeng Program will just about compensate for the reduction in the government’s on-budget investment in 2010.

Key risks to the outlook are (i) political uncertainty and (ii) the timing of the withdrawal of fiscal and monetary stimulus. Increased political tensions may have a long-lasting impact on investment, and withdrawal of stimulus (in Thailand and the advanced economies) must be precisely timed to avoid macroeconomic imbalances (including new asset bubbles) while also ensuring that the recovery is on a sufficiently solid footing.

Automotive manufacturing in Thailand started 50 years ago after a Japanese company set up operations as an import substitution activity to take advantage of preferential tax and import duty treatment. Laws mandating local content were subsequently introduced, with the limits raised from an initial 30 percent to 40 percent and then 60 percent, to be abolished after the 1997-98 financial crisis. All pickup truck production prior to the 1997/1998 financial crisis was intended for domestic consumption, but companies began exporting after Japanese pickup producers shifted production from Japan to Thailand at the turn of the century. Tax and excise incentives by the Thai authorities encouraged domestic sales of pickups at the expense of cars, and pickups still amount to almost three-fourths of current output.

Stimulus programs were implemented in Thailand throughout 2009, confirming improved expectations, boosting demand and supporting the momentum of the economic recovery.

Foreign reserves up 29% in 2009

The export collapse in 2009 has been the most severe in Thailand’s recent history. The magnitude of the decline has been unprecedented. Since 1957, there have been nine episodes where exports contracted for at least six consecutive months. Losses to date are more than double those in the 1997-98 Asian financial crisis and the 2001 “dot.com” bubble turmoil. Thailand’s export performance tracked developments in world merchandise trade, which dropped around four and eight percent in the 1997 and 2001 meltdowns, respectively, but 22 % so far during the current global financial crisis.

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