Thai central bank fights uphill battle against strong baht

Bangkok

THE recent US presidential election has had an immediate impact on Thailand's economy, causing the baht to spike vis-a-vis the dollar, and economists say this is bad news for Thai exports.

In the three weeks between election day on Nov 3 and Nov 24, the baht appreciated 3 per cent against the US dollar.

This is the second-largest currency hike in South-east Asia after the Indonesian rupiah, which has surged 3.2 per cent against the greenback over the same period.

While a strong currency is considered a positive sign of international confidence in a country's fiscal standing, it can hurt the price competitiveness of exports.

Thailand's exports, amid the Covid-19 pandemic, are performing poorly, in part a reflection of slowing global demand but also a sign of diminished competitiveness on the world market.

In October, Thailand's exports in October stood at US$19.4 billion, down 6.7 per cent year-on-year and 3.9 per cent from September.

But during the same month, Thailand's imports reached US$17.3 billion, shrinking 14.3 per cent year-on-year, leaving the country with a trade surplus of US$2.04 billion, according to latest figures from the Ministry of Commerce.

During the first 10 months of 2020, Thailand's exports contracted 7.26 per cent to US$192.4 billion, while imports dropped 14.6 per cent to US$169.7 billion. This resulted in a trade surplus of US$22.7 billion.

Foreign reserves remain high, at US$252 billion as of Nov 6. The current account surplus, combining surpluses from trade and services, was US$14 billion as of Nov 16, considerably below the US$38 billion surplus in 2019.

Thailand continues to have a current account surplus this year despite international tourist arrivals falling off a cliff due to Covid-19 - from 40 million visitors in 2019 generating an estimated US$66 billion in foreign exchange revenues - to an estimated 6.7 million arrivals this year.

If a vaccine proves effective, it could be administered at earliest by mid-2021, pushing tourist arrivals up to an estimated 15 million at best, which would put a bit more pressure on the baht.

As long as Thailand - the second-largest economy in South-east Asia - enjoys a current account surplus, economists say it will be hard to see the baht weaken much more.

"The baht is getting strong because of the current account surplus, said Charl Kengchon, executive chairman of the Kasikorn Research Centre, a think tank belonging to Kasikorn Bank. "We have expectations that the US dollar will decline in the coming months because the economic outlook for the US economy is not bright and people expect the Federal Reserve to cut rates one more time."

Kasikorn Bank has predicted that the baht will remain at about 30 baht to the dollar this year, and appreciate to 29.25 to the dollar by the end of 2021, he said.

The Bank of Thailand (BOT) has come under increasing pressure to do something about the baht from Thai exporters who would like it in the 32 to the dollar range.

On Nov 20, the BOT increased the investment limit in foreign securities for retail investors to US$5 million per year, up from US$200,000 previously.

"Most observers expect the Bank of Thailand to further liberalise outbound investments and relax capital control rules as one means to alleviate the strengthening currency," said Joseph Poon, Ground Head of DBS Private Bank.

DBS set up a joint venture with DBS Vickers Securities (Thailand) in September 2019 to operate a wealth management business in Thailand after the BOT relaxed capital controls on high net worth individuals to allow them to invest abroad.

Mr Poon said the JV had enjoyed "strong growth" during the pandemic, with many wealthy Thais looking at investments abroad as local options became less attractive.

He said it remains on-track to achieve its target for Thailand, which is to double wealth management AUM (assets under management) from S$4 billion as of Sept 2019 to S$8 billion. by 2023.

But economists say the outflow via wealth management funds remains minor, and would have little impact on the current account. "The only sustainable solution is that Thailand gets back to investment-led growth again," Mr Charl said. "We need to start importing again and trimming the surplus in trade to a level that the baht weakens."