Thailand’s exports of farm products in the first quarter of this year have already felt the pinch from the impact of the baht’s rapid appreciation and it is likely to worsen, according to an academic study.
Kasetsart University’s Office of Agricultural Economics (KU-OAE) Foresight Center director Jaruk Singhapreecha said the baht appreciation has caused a loss of about Bt7.7 billion so far and the most affected goods are rice, rubber, tapioca and seafood products.
If the baht continues to rise, it will reduce the country’s overall volume of agricultural exports, he added.
Dr Jaruk advised the government to adopt stringent measures to deal with the problem, warning that if the baht touches Bt28 per US dollar, the heavy burden will be further added to farmers, particularly small-scale farmers, who will hardly survive in such a situation.
The Bank of Thailand is widely expected to take action soon to rein appreciation of the baht
Markets are braced for the action. Touching a new 16-year high yesterday with a 0.18 per cent rise from Friday’s closing to 28.58 per US dollar, the baht later lost 0.2 per cent to 28.74 at 3.12pm. So far this month, the baht has gained more than 2 per cent against the dollar and 8 per cent over the Japanese yen, making Thai goods more expensive in the countries where trade is denominated in the two currencies.
Pakorn Peetathawatchai, Stock Exchange of Thailand’s executive vice-president, yesterday recommended investors to closely monitor exchange rates, saying that there could be capital controls due to the baht’s excessive gain.
“It remains to be seen how the authorities will act to control the hot money. We can’t afford to take no action. We have never witnessed the baht appreciate this quickly, or the sharp rise in the stock market like this,” Pakorn said.
In the first quarter, the SET index gained 12.15 per cent, making it the world’s best-performing market after Vietnam (18.7 per cent), the Philippines (17.1 per cent), Laos (15.9 per cent) and Indonesia (14.5 per cent). Overseas investors bought US$2 billion more Thai sovereign debt than they sold this month through to April 19, adding to net purchases of $9.8 billion in the first quarter.
To stem the baht’s appreciation, former Bank of Thailand chairman MR Chatu Mongol Sonakul urged the central bank to buy more dollars, rather than cut the policy rate.
Prime Minister Yingluck Shinawatra has instructed appropriate agencies to seek measures to help exporters affected by the ongoing appreciation of the baht.
The Prime Minister said that the impact of the stronger baht was an important issue and that officials involved must take action to assist those suffering from the impact.
In order to cope with the situation, the Prime Minister will call meetings with responsible agencies periodically to discuss ways to deal with the problem. The stronger baht will make Thai products more expensive for overseas buyers.
She believed that if all parties joined hands in handling the issue, the crisis from the strong baht would ease. Asked whether the Government would intervene or not, she said, it is the duty of the Bank of Thailand to take care of the baht value.
Deputy Prime Minister and Finance Minister Kittiratt Na-Ranong said that the Government had set the export growth target at 9 percent in 2013. It needs to keep a close watch on the movements of the foreign exchange market to ensure that the set target will be achieved and Thai products remain competitive in the international market.
He believed that if the baht did not strengthen rapidly, the export sector would be able to continue to grow. In this regard, the Ministry of Finance and other relevant agencies would closely monitor exchange rates.
The Director of the Center for Economic and Business Forecasting, University of Thai Chamber of Commerce, Dr. Thanavath Phonvichai, said that a survey conducted by the University of Thai Chamber of Commerce shows that the appreciation of the baht has led to a decline in Thai exports. According to the survey, 42.1 percent of business operators said that the stronger baht has affected their operations at a high level, resulting in a drop in orders and profits, while 31.6 percent consider the impact moderate. Most of them agreed that the baht should be traded at 30.48 per US dollar. The rate of 29.18 baht per dollar is still acceptable.
The survey also indicates that if the baht strengthens further, some businesses might have to lay off workers. Business operators want the Government to look into this issue by reducing the money exchange fee, bringing down the interest rate, and controlling capital inflow to ensure financial stability. If the baht strengthens to 27 per dollar, the export growth target is likely to drop to only 3 percent.
Mr. Paiboon Kittisrikangwan, Assistant Governor of the Bank of Thailand, stated that the private sector needs to adjust to the new situation. An assessment would be made on the necessity of measures to deal with the situation, since certain measures would produce long-term impacts. He reaffirmed that the current monetary policy rate at 2.75 percent per annum remains favorable to the expansion of credit and the growth of the Thai economy.