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July 03, 2009

shrimpcertification

ASEAN certification for the shrimp industry
Proactively avoiding trade sanctions

By Jon Fernquest

shrimpThe US is Thailand's biggest market for shrimp, representing about 50% of Thai shrimp exports.

For several years Thailand's shrimp industry endured a
grueling fight against US anti-dumping sanctions (Read case study also paper on anti-dumping as veiled protectionist measure).

Six years ago in 2003 a trade association of Shrimp farmers in the US filed an anti-dumping petition against six countries — Brazil, China, Ecuador, India, Thailand and Vietnam.

Thailand eventually won the fight and the punitive anti-dumping duties were finally reduced (Read article).

As the Bangkok Post observed a few months ago, "From 2004, US Customs had required exporters subject to anti-dumping duties to post a bond covering the full amount as security against the risk of default."

This burdensome requirement was also finally lifted recently.

Today's article features a lot vocabulary in the area of international trade law (See below).

certificate (noun) - an official document that shows that certain facts are true (for example, a school certificate proves you graduated from school, a cleanliness certficate proves that your workplace is clean, a certificate of origin proves that your product comes from a certain place)
certification (noun) - an official process that provides proof that certain standards have been met after tests and inspection, an official document (certificate) to prove that these standards have been met  การรับรองคุณภาพ
certify (verb) - provide official proof that something is true (that certain goals have been achieved)
certify shrimp - provide official proof that shrimp meet standards
proactively (adverb) , proactive (adjective) - acting early to solve problems before they occur, anticipate and solve problems before they actually happen
sanctions - punishment for countries that have broken international law (restricting trade and official contact)
a grueling fight - an extremely difficult and tiring fight
dumping - when a manufacturer exports a product to another country at a price which is below its costs of production  or below the price it charges in its home market or (See Wikipedia)
anti-dumping sanctions - when one country punishes another country for dumping
veiled - disguised, doesn't look like what it really is
protectionist - policies, ideas, or laws that reduce imports into a country from other countries (See glossary)
veiled protectionist measure - some action that is protectionist but doesn't look like it
a trade association - an organisation joining together all the companies in an industry in a country to represent them and defend their rights
a petition - a formal request made to people with authority (in goverment such as a court)
filed an anti-dumping petition - made a formal request that the government punish another country for dumping
punitive - punishing 
duties - taxes paid on imported goods
punitive anti-dumping duties -
customs - the government agency that controls goods entering and leaving a country, checking to make sure they are not illegal and collecting taxes or duties on goods
subject to anti-dumping duties -
a bond - (See Wikipedia)
post a bond covering the full amount as security against the risk of default
-
burdensome -
lift a requirement - end the requirement

Asean plans to set up body to certify shrimp

Increasing barriers add costs for farmers
By  WALAILAK KEERATIPIPATPONG
1/07/2009  

The Asean Shrimp Alliance (ASA) is working to establish a regional certification body to verify the production standards of shrimp raised in member countries for exports.

The move, discussed at a meeting in Bangkok yesterday, aims at lessening pressure from buying countries, which have set different restrictive standards against imported shrimp and other types of aquacultural produce.

While the standards, considered by some as safeguard measures, share some similarities, they eventually add to shrimp farmers' costs, according to Somying Piumsombun, the director-general of the Fisheries Department.

"They have to change their production practices to comply with those standards, a move that erodes their export competitiveness," she said.

According to Dr Somying, many Asean countries have played an important role in the world shrimp industry and their production standards are in line with international benchmarks recognised in the global market.

Thailand's shrimp farming, for example, complies with the Thai government's good agricultural practice, which is by no means inferior to the standard set by ACC (Aquaculture Certification Council) of the US, she said.

"The Thai shrimp industry had in the past suffered from nitrofuran residues but we later solved the problem with a lot of improvements and efforts," she said.

Dr Somying said she believes that some countries have imposed restrictive import standards not only to protect local consumers but also for commercial purpose. Tighter rules could end up pushing the prices of imported products.



She admitted that the establishment of the Asean certification body might not be completed in the near future. In any case, the two-day discussion at the ASA's forum ending today would show promising results with clearer guidelines for further works.

ASA was formed in 2007 by Asean members, especially major shrimp producing and exporting countries such as Thailand, Vietnam and Indonesia.

These countries have played a significant role in Asia and helped transformed the region into the world's major shrimp production base, accounting for nearly 85% of world production. The major markets of shrimp products are the United States, European Union, and Japan.

Thailand alone produced about 500,000 tonnes of shrimp last year. Of the total output, 90% was exported, generating income of about 80 billion baht. Half of the exports were destined for the US market.

Dr Somying said that the organisation aims to help improve shrimp farming among member countries and overcome export obstacles.

Despite low rejection rates, importers keep setting more purchasing conditions in terms of standards certification such as diseases and some non-tariff barriers over the past five years.

(Source: Bangkok Post, business, Asean plans to set up body to certify shrimp, Increasing barriers add costs for farmers, WALAILAK KEERATIPIPATPONG, 1/07/2009, link)   

proof (noun) - fact, evidence and arguments that shows that something is true
prove
(verb) - to use fact, evidence and arguments to show that something is true
a body - an organisation
set up a body
- create an organisation 
barriers, barriers to trade - laws that make it more difficult for exports from other countries to enter a country as imports
regional certification body - an organisation in a region like ASEAN that officially certifies that standards have been met
standards - acceptable levels of quality มาตราฐาน
production standards - levels of quality that the goods produced in a factory must meet
restrictive standards -  standards that restrict what can be produced and how it can be produced (for example, with workers that are paid a reasonable amount and treated fairly)
verify - check and prove that something is true or that standards have been met
verify the production standards - check and prove that production standards have been met
comply with standards - follow the standards, meet the standards
standards certification - issueing an offiicial document that standards have been met
pressure - when people are being pushed or forced to so something
lessening pressure - be less forceful about people doing something
safeguard - protect
safeguard measures - actions taken to protect something
fisheries - fish farms, places to raise fishes 
production practices - the standard ways that a task are done or performed
competitiveness - how well a company is able to maintain or gain customers in a market
export competitiveness - how well a company is able to maintain or gain customers in export markets 
erodes their export competitiveness -
in line with - following, agreeing with
benchmarks - standards used to judge how good or bad other things are
international benchmarks recognised in the global market.
complies with the Thai government's good agricultural practice,
by no means inferior to - has equal quality or higher than
aquaculture -  the farming of shell fish and plants underwater includes: fish farming, shrimp farming, oyster farming, raising cultured pearls, kelp, seaweed, and algae (See Wikipedia)
ACF (Aquaculture Certification Council) - an NGO for standards certification at aquaculture facilities around the world,  includes food safety, environmental, and social standards (See website)
nitrofuran - a kind of drugs used as antibiotics or antimicrobials (See Wikipedia)
antibiotics
-  a drug that kills or inhibits the growth of bacteria (See Wikipedia)
antimicrobials - a drug that kills or inhibits the growth of microorganisms such as bacteria, fungi, or protozoans, as well as destroying viruses (See Wikipedia)
residues - the part that remains after the rest has gone away
nitrofan residues - some of the drug that remains (not good)
imposed
- force someone to do something or follow some rule
tighter rules - stricter rules, rules that strongly control an activity
guidelines - instructions or advice about how to do some task
clearer guidelines - instructions that are easy to understand and follow 
played a significant role in -  was an important part of
transformed - changed
overcome - solve a problem
obstacles - things that make it difficult to so something
tariff - a tax on imports or exports
non-tariff barriers
- non-tax-related laws in a country to prevent imports from other countries


July 01, 2009

usedcarfinancing

Used car market in Thailand contracts due to a lack of financing

By Jon Fernquest

used car dealershipThe used car sector is the subject of this week's Business Focus in the Bangkok Post.

Several interesting articles investigated different aspects of this important sector in Thailand:

1. Thailand's thriving trade in aftermarket parts  (link).

2. Cheaper automobile insurance policies (link).

3. Branding and public perception of used-car dealers (link).

4. The used car loan market in Thailand (link).

5. Lack of finance leads to used car market contraction (See following article).

Here is the lead article from Business Focus:

Economics
BUSINESS FOCUS

STUCK IN LOW GEAR

Used-car sales are off as much as those of new cars, not for lack of buyers but lack of finance.
By Nareerat Wiriyapong and Yuthana Praiwan
29/06/2009

It's no surprise that many consumers are hesitant to buy new cars these days, given uncertainty about jobs and future incomes. One would expect that the used-car market should be doing better as people seek cheaper wheels.

But sales of used cars in Thailand have declined by 30% this year - the same rate of contraction as the new-car market - as the economic slump curbs purchasing power while fluctuating oil prices affect customers' decision-making.

But dealers say the biggest brake on sales has been the inability of buyers to get financing.

"Economic factors have strongly dampened used-car sales volume, the same as the new-car market has experienced," said Sitachai Jeeratunyasakul, vice-president of Toyota Motor Thailand (TMT).

TMT, Thailand's largest automaker, has marketed used cars for the past five years under the "Toyota Sure" brand.

"We estimate the overall used-car market has dropped by 30%. Toyota Sure, however, expects sales to drop less than those of our new cars," he said.

When the economy slows, Mr Sitachai says more consumers are likely to seek used cars because they cost 20-50% less than new ones depending on models and age.

But leasing conditions have become very tough, while lenders have also raised down-payment requirements and interest rates on used-car loans, he said.

"Financial firms minimise risks from leasing services during the economic slowdown by strictly checking each customer's background and track record of debt payment," said Mr Sitachai.

Chaiyapol Cholprasertsuk, the owner of a used-car centre on Ratchadapisek Road, said his monthly sales had dropped 30% from 2008 to 20 units.

"Consumers' purchasing power have been lower while leasing firms have become so strict about approving auto loans," he said.

The 22-year-old business sells vehicles from Toyota, Isuzu, Nissan, Mitsubishi, Chevrolet and Ford, mainly pickup trucks. It works with more than 10 leasing firms such as Thanachart, GE, Tisco, SCB Leasing, and Siam City Leasing.

Since the beginning of this year, leasing companies have demanded a down payment of 25% of a used car's price, up from 10-15% last year, to cope with rising risks of non-performing loans.

The NPL ratio has reached an unprecedented 30% of total car sales at his centre, Mr Chaiyapol said.

"Interest rates for used-car purchases, varying from 3.5% to 10%, have not fallen even though banks have cut rates many times," he said.

"Even though down payments and interest rates for new-car purchases have been reduced, I think the price gap between new and used cars remains substantial and is a major deciding factor for car buyers."

Toyota Buzz, which sells used Toyotas on Ratchadaphisek Road, also expects its sales could fall 20-30% unless new marketing campaigns and increased after-sales services can lure customers.

With quality certification by TMT, Buzz used cars cost more than those sold by independent dealers.

"As consumers' purchasing power has decreased, used vehicles might be the option if they want to buy a car," said a Toyota Buzz executive.

He agreed that tough lending terms had deterred many customers. "However, we have seen customers buying cars with cash rising substantially."

Also hurting the used-car market is the heavy competition in the new-car market. Common promotions include price discounts, zero down payment, low interest, free first-class insurance, as well as extended payment periods.

Chawalit Wanittananun, the operator of Rodbaan Khun Chawalit, says used-car dealers need to put more effort into speeding up customer decisions.

"Their behaviour has changed a lot since the economy slowed down. They spend much longer time making decisions, they have a lot more conditions. They compare dealers' offers as they expect to see better offers," he said.

In a tough market, high inventories are a major burden for used-car dealers. Mr Chawalit has cut his inventory to no more than two months at his Rattanathibet showroom, focusing on Japanese cars for which there is steady demand.

Among the cars keeping their value are the popular Toyota Yaris and Vios. A 2006 Yaris can fetch between 400,000 and 580,000 baht depending on options, and a Vios for the same year will cost 350,000 to 450,000 baht, he said.

contracts - grows smaller, shrinks
thrive - do well and be successful
thriving trade -  doing lots of business, making lots of money
an aftermarket,  a secondary market -  a market for already used things
automotive aftermarket parts - the market for automotive parts and servicing after the initial sale of a new car, "the part of the automotive industry concerned with the manufacturing, remanufacturing, distribution, retailing, and installation of all vehicle parts, chemicals, tools, equipment and accessories for light and heavy vehicles after the sale of the automobile" (See Wikipedia and explanation)
perception - the way people think about something, the impression that people have of something
STUCK IN LOW GEAR - cannot change from low gear in your car, in low gear a car goes slowly 
sales are off - sales have fallen recently
hesitant - waiting to act, not acting quickly
contraction - get smaller, shrink 
curbs purchasing power - reduces how much you can buy
dampened used - car sales volume
models - different designs or types of a product
lease - a legal agreement allowing the use of a building, equipment or land for a period of time for the payment of rent
leasing conditions
- details in leasing agreement that borrower must follow
down-payment - the first large payment of money given before making smaller regular payments for a purchase (installments)
raised down-payment requirements - increased the initial large payment that must be paid
checking each customer's background - checking the history of a customer
track record - how well they have done in the past
track record of debt payment
- how well a person has paid back their loans in the past
consumers' purchasing power - the ability of customers to buy a certain amount of goods
cope with - deal with a problem
Non-Performing Loan (NPL), bad loans - a loan that the borrower is not paying back (or very late paying back)
NPL ratio - 
the percentage of loans that are non-performing loans (NPLs)
unprecedented - has never happened before 
after-sales services - services for cars such as repair after a car is bought
lure customers - when a business tries to attract and get new customers
certification - an process of meeting certain high standards and being issued with an "certificate" to prove this after an official examination  
quality certification by TMT - an organisation name TMT checks that high standards have been met and issues a certificate
independent dealers - companies that sell cars that are not owned by or tied to one brand
an option - one possible choice or decision
tough lending terms - loans with more difficult conditions, higher interest rates, shorter pay back periods, etc
deterred -
extended payment periods - money loaned for a longer period of time, borrowers have a longer period of time to pay back loan
high inventories - have a lot of unsold product
fetch a price - customers buy the good at this price

(Source: Bangkok Post, business, STUCK IN LOW GEAR: Used-car sales are off as much as those of new cars, not for lack of buyers but lack of finance, Nareerat Wiriyapong and Yuthana Praiwan, 29/06/2009, link)



June 30, 2009

govbudgettransparency

Making Thai government budget and spending more transparent

By Jon Fernquest

nlaIncreased government spending makes some people nervous.

One reason:  Taxpayers can't see how the government is spending the money they pay in taxes.

A Bangkok Post article yesterday looked at how transparent Thailand is in its government budget and spending compared to other countries.

Thailand didn't get high marks, scoring only 40% compared to the highest performers: the UK (88%), France, South Africa (87%), New Zealand (86%) and the US (82%) (See full rankings).

WHERE DOES THE MONEY GO?

Thailand given low marks for budget transparency and follow-up, despite Budget Bureau's best efforts.
By Parista Yuthamanop
29/06/2009


The likelihood of the government incurring massive debt with its economic stimulus over the next few years has accentuated the importance of easy access to data on its spending.

The public can currently use the Budget Bureau's website, http://www.bb.go.th, to find information on strategy, budget allocation, enacted budget, progress of budget distribution, emergency and tied-over budgets, and parliamentary budgetary review.

But Thailand's performance is ranked as poor by the Open Budget Index in 2008, which focuses on the accessibility of data to laypeople, based on questionnaires. The survey by the US-based International Budget Partnership, a research house specialising in fiscal policy, gave Thailand only 40%.

This compares poorly with the best performers - the United Kingdom (88%), France and South Africa (87%), New Zealand (86%) and the United States (82%).

The report said that the budget proposal gives the public a "fairly comprehensive" picture of the government's plan for taxing and spending for the coming year.

"The proposal should be available to the public and the legislature prior to being finalised, at least three months before the start of the budget year to allow sufficient review and public debate," it said.

But the lack of mid-year and year-end reports has created difficulties in tracking how the budget is being spent during the year. This undermines public accountability, the report said.

But Siwat Luangsomboon, a senior economist at the Fiscal Policy Office, said authorities had performed well in a Public Expenditure and Financial Accountability survey by the International Monetary Fund, which measured broader budgeting processes, ranging from comprehensiveness of spending types and transparency to fiscal risk management.

The Finance Ministry couldn't publish year-end and audit reports of the budget because of discrepancies between data on the government's electronic platform and the figures used by the Office of the Auditor General. The government has published a "budget in brief" on its website and as a booklet to make it easy for the public to understand, he said.

The ministry does not submit a mid-year report to parliament because of budget relocations between departments of government agencies.

"Nonetheless, the constitution calls for the government to inform the public every six months of transfers of budgets between agencies or for other purposes, by the end of the year," said Mr Siwat.

Vorapol Socatiyanurak, vice chairman for the Economic and Social Advisory Council, said the government should set up a committee comprising representatives of different social segments to monitor whether the budget is used properly over the next few years.

Dr Vorapol said the government's 800-billion-baht borrowing plan would push fiscal stability to the limit as it raised public debt to 60% from 40% of gross domestic product. "Thailand's tax revenue stands at 18% of GDP, much lower than Japan, which has a high percentage of public debt. The government cannot be careless with spending. Importantly, investment must give reasonable returns," he said.

"The fact that private and state enterprises operate with relatively poor competitiveness constrains fiscal revenue."


Meanwhile, Nitinai Sirismatthakarn, the owner of Economic Development Consulting Group, said fiscal data were comprehensively available, but scattered among different agencies.

He said the public could gauge whether the stimulus package is beneficial by looking at whether debt per GDP decreases.

transparent (adjective) - visible, can be seen by the public, not hidden
transparency (noun) - a condition or state of being visible
marks - grades
follow-up -  action that continues and supports what was started earlier (example: to make a sale one must follow-up all initial contacts)
likelihood - the possibility that something will happen
incurring massive debt - borrowing very large amounts of money that you must pay back
economic stimulus - government spending and tax cuts to get the economy growing again
accentuated the importance of - emphasized the importance of
budget allocation - the amount of the government budget given to some activity
enacted budget - the budget that has been made into law (by parliament)
progress - work that has been completed towards a goal
progress of budget distribution - how much of the budget has been given to the government agencies and departments that will use it 
emergency budgets - money that is made available for use in an emergency situation
tied-over budgets -
parliamentary budgetary review - when members of parliament go over and check what government money will be spent for and either agree or disagree
performance - how successful someone is in doing some task
US-based International Budget Partnership - an NGO that collaborates "with civil society organizations in developing countries to analyze, monitor, and influence government budget processes, institutions, and outcomes.  The aim of the Partnership is to make budget systems more responsive to the needs of poor and low-income people in society and, accordingly, to make these systems more transparent and accountable to the public."  (See website)
Open Budget Initiative -  a global program to "promote public access to budget information and the adoption of accountable budget systems, includes a survey  that "evaluates whether governments give the public access to budget information and opportunities to participate in the budget process at the national level."(See website)
Open Budget Index - a ranking of countries around the world by transparency of government budget and spending (See ranking)
laypeople - ordinary people, not specialists or experts
accessibility of data to laypeople - whether ordinary people can get the data or learn about it easily
questionnaires - a written list of questions that many people answer to provide data for a survey or study
fiscal policy - government spending and taxation policy  แผนงบประมาณรายปี
budget proposal -  giving a plan future spending 
gives a fairly comprehensive picture of - describes all parts and aspects  
allow sufficient review and public debate, available to the public and the legislature prior to being finalised   - give the public the budget and spending information and let them debate about changes
tracking - following
tracking how the budget is being spent - following how government agencies are spending the money budgeted for them
undermines - weakens
undermines public accountability - weakens the ability of the public and taxpayers to find out what is being done with their money 
comprehensiveness - covers all details of a subject or topic
transparency - visible, can be seen by the public, not hidden
fiscal risk management - making sure that the government is always able to pay for the things it needs to pay for (planning for low revenue years, making sure that money borrowed does not increase the interest rate paid causing the debt to balloon)
audit - examine officially to make sure that money is being used and recorded correctly
auditor -  an accountant who audits the accounting records of a company or government
discrepancies - things that should be the same but are not the same
a booklet - a small book
budget relocations - moving money from use to another use in the budget
transfers - moving something from one place to another place
V comprising X, Y, and Z - V has X, Y, Z as members or parts 
social segments - different parts of society (example: poorer rural dwellers, richer urban dwellers)
monitor - regularly check an ongoing activity or process (to check for problems or collect information)
push fiscal stability to the limit - borrow the greatest amount that you can, before having problems paying it back
public debt - money borrowed by the government
careless - not careful so make mistakes
reasonable returns - profits that are fair and match expectations, not excessive
state enterprises - companies owned by the government such as the electricity or railway companies
constrains - limits
state enterprises...relatively poor competitiveness constrains fiscal revenue - companies owned by the state cannot compete very well and have low profits
scattered  - spread over many different places
gauge - measure

(Source: Bangkok Post, business, WHERE DOES THE MONEY GO? Thailand given low marks for budget transparency and follow-up, despite Budget Bureau's best efforts, Parista Yuthamanop, 29/06/2009, link





June 26, 2009

olarn

Devalue baht, loans from state banks, don't raise oil tax
Dr. Olarn Chaipravat's prescription for Thai economic policy 

By Jon Fernquest

dr olarn chaipravatThai central bank governor Dr. Tarisa Watanagase was interviewed by the Bangkok Post earlier this week (Read article).

Disagreeing with Dr. Tarisa at least about exchange rates  economist Dr. Olarn Chaipravat who served as Deputy Prime Minister under Thaksin was featured in a Bangkok Post interview yesterday (See article below).

Dr. Olarn calls for aggressive government intervention aimed at:

1. Baht devaluation
2. Expanding credit and loans in the economy

To expand credit he calls for 300-billion-baht in new loans by state banks. Where is this money to come from? From the Thai government? Is the borrowing capacity of the Thai government enough to support such a loan programme? The Fiscal Policy Office declared yesterday:

...fiscal policy is at its limits, so that additional spending programmes could jeopardise the country's long-term financial position. Under current budget plans, public debt is projected to jump, from 40% of gross domestic product now, to 60% by 2013, a level last seen during the 1997 economic crisis (Source: Bangkok Post, Fiscal Policy Office report, 26-06-09, link)

As for baht devaluation, Dr. Olarn cites the recent Korean example:

The Korean government and central bank have intervened in the currency markets to weaken the won, benefiting exporters and resulting in overall economic growth...

Actually, the Korean government did not intervene but rather allowed the currency to collapse and many suffered as a result (Read analysis and article and The Economist) . Dr. Tarisa pointed out in her interview that a weak baht policy would likewise hurt some industries as well as help some. 

Yesterday's report by the Fiscal Policy Office also notes: "A weaker baht would not necessarily help exporters increase sales." With weakened global demand export opportunities have largely dried up.

The world economy is currently tracking the Great Depression (Read article). Beggar-thy-neighbor competitive devaluations sparked trade wars in the 1930s precipitating the Great Depression (Read article and Eichengreen). If there are currently no new export markets to be had, then export expansion can only be at the expense of neighboring countries.

There is also the BOT's disastrous interventions in foreign currency markets in the run up to the 1997 Asian Financial Crisis. Would their track record this time around be any different?  BOT governor Dr. Tarisa Watanagase is too prudent to allow a repeat of 1997.

Dr Olarn claims that "every 1% decline in the value of the baht would help create 50,000 new jobs and boost economic growth by 0.14 percentage points." One can only ask whether these econometric estimates are really based on a global recession with collapsed export markets? Probably not. 

devalue - take action to make the currency of a country worth less (depreciate) and therefore make exports cheaper and more competitive on international markets
prescription
- medicine that a doctor prescribes to cure an illness
aggressive - done with great energy and intensity
government intervention -
when the government buys and sells in markets to influence prices and supply and demand
devaluation
- when the value of a currency falls and the export goods of the country become cheaper
capacity -
the ability to do something
borrowing capacity - 
the greatest amount that a company or government is able to borrow and not have trouble paying back
jeopardise - create a situation with possible loss
financial position - the state of the balance sheet of a company, person, or government; what assets, liabilities, and equity it has
tracking the Great Depression - following the Great Depression in all its details
beggar-thy-neighbor - a policy in which one country wins but another must lose
competitive devaluations - when countries compete to have the lowest exchange rate to make their export goods the cheapest
precipitating - causing 
in the run up to - in the events the happened beforehand
track record - how well or badly a person has done at a certain job over time

Olarn: Weakening baht key to growth

Disagrees with raising oil taxes as well
By WICHIT CHANTANUSORNSIRI
25/06/2009

Economic policymakers should aggressively intervene in the foreign currency and credit markets to help spur economic growth, says the economist and former deputy prime minister Olarn Chaipravat.

Dr Olarn, speaking at an economics conference hosted by the Fiscal Policy Research Institute, said this year's budget deficit would almost certainly exceed 400 billion baht, considering the 350-billion-baht deficit set under the budget law and projections that revenues could fall short by at least 200 billion.

Running a budget deficit in the midst of a global economic contraction was a proper policy response, one that is being implemented by numerous countries.

"Raising oil taxes, however, is counter to the government's policies to stimulate growth," Dr Olarn said.

The central bank also should help lift exports in baht terms by aggressively intervening in the markets to push the baht lower against major currencies.

State-owned banks should also lift lending activity, he said. A 300-billion-baht new loans target for this year would help ease credit constraints faced by key industries, such as automobiles, electronics and property.

Government efforts to facilitate lending in the first half proved a complete failure, he said. Outstanding loans 120 billion baht system-wide in the first quarter and 30 billion in the second. Banks have contractedtightened lending criteria over fears of higher risk. And the recession has cut demand for credit to finance investment and spending.

Dr Olarn noted that the baht fell to 35.5 to the US dollar in the first quarter but has since appreciated to around 34.5 in the second.

"What we should be looking for is a rate of 36 baht to the dollar, weakening to 36.5 in the third quarter and 37 in the fourth quarter. If we can do this, it would generate another 500 billion baht in export revenues for the country," he said.

The Bank of Thailand has steadfastly refused to set explicit currency targets, and said it will only intervene in the markets to smooth volatility.

The baht has appreciated in recent months thanks to the country's growing trade surplus and portfolio inflows.

Most economists also expect the greenback to weaken in the medium-term as a result of a significantly weaker debt and fiscal position caused by the global crisis.

The Korean government and central bank have intervened in the currency markets to weaken the won, benefiting exporters and resulting in overall economic growth, said Dr Olarn.

The US and Chinese economies have also taken aggressive action to spur growth, with the Federal Reserve directly purchasing bonds from the market to boost liquidity and China directing large state-owned banks to boost lending to the real sector.

"Thailand faces fewer restrictions in currency policy if compared with China, which is too large to really sway the value of the yuan," Dr Olarn said.

But every 1% decline in the value of the baht would help create 50,000 new jobs and boost economic growth by 0.14 percentage points, he said. Inflation would also increase by 0.2 percentage points, as the cost of imports increase in local terms.

Dr Olarn said a weak baht policy would increase the cost of energy in local terms, but the government could choose to reduce oil taxes to lessen the impact on the public, although this policy could potentially widen the budget deficit.

aggressively - done with great energy and intensity
intervene -
when the government buys and sells in markets to influence prices and supply and demand
credit markets - markets for borrowing money (bonds, commercial paper, bank loans, etc)
spur economic growth - make the economy grow faster
Fiscal Policy Research Institute (FPRI) - non-profit organisation part of Finance Ministry founded in 2001, both carries out research as well as promotes research (See website and history)
a deficit, a budget deficit, running a budget deficit - when the government spends more money than it receives in tax revenue (must borrow to pay for deficit)
widen the budget deficit - the budget deficit gets bigger
the budget law - Thailand's law on the largest sized budget that the government can have and the largest budget deficit it can have
revenues could fall short - the money the company makes is less than the goal
face constraints - be limited, activity is difficult due to limitations 
ease credit constraints - make the activity less difficult, remove constraints and limitations
facilitate lending - help companies and people get loans
outstanding loans contracted - the amount of loans that have not been paid back yet decreased 
tightened lending criteria -  made it more difficult to get loan, requirements more difficult to meet
steadfastly refused - continued to say they would not do it, would never never agree to do it 
explicit currency targets - an exchange rate announced to the public that a country tries to achieve
volatility - moving suddenly and unexpectedly
smooth volatility - reducing sudden and unexpected movements
intervene in the markets to smooth volatility - when the government buys and sells to reduce sudden and unexpected movements
trade surplus - when a country's exports are greater than imports
portfolio investment - when investors invest by buying stocks and bonds
Foreign Direct Investment (FDI) -  
when investors invest in another country by buying or starting an actual company
portfolio inflows
- the portfolio investment entering a country during a period 
the greenback - the US dollar
spur growth - make the economy grow faster
sway the value of the yuan - change the value of China's currency
a weak baht - a baht that is cheaper compared to other currencies
lessen the impact on the public - make the negative effects and damage to people less

(Source: Bangkok Post, business, Olarn: Weakening baht key to growth, WICHIT CHANTANUSORNSIRI, 25/06/2009, link)


June 25, 2009

smesjapan

Thai EXIM Bank to the rescue!
After exports collapsed and trade finance along with it...

By Jon Fernquest

container shipEarlier this year the exports that have driven growth in Asian economies for years suddenly collapsed. 

When exporters started having problems, the banks that lend them money (trade finance) started to lend less because the loans suddenly looked a lot riskier. 

The Thai government then intervened to alleviate some of the problems. As economists at VoxEU noted recently:

"Thailand will inject an additional $140 million to the Thai EXIM Bank to increase export insurance. In addition, $85 million were allocated to the Small Business Credit Guarantee Corporation so it can raise small and medium-sized enterprises' credit guarantee fund and loans. In response to increasing demands from Thai exporters, the Thai EXIM Bank also provided risk assessment services and related trainings. Familiarising small and medium enterprises (SMEs) with trade finance instruments is essential as buyer default risk has increased and SMEs are usually not protected against it " (Source: VoxEU also Bangkok Post article)

Today's article covers the latest developments in government support being given to exporters, especially Japanese SMEs: 

Japanese SMEs more hopeful

Aid may expand beyond export credits
By NAREERAT WIRIYAPONG AND VICHAYA PITSUWAN
24/06/2009

Thailand is expected to grant other financial aid to Japanese small and medium enterprises (SMEs) operating locally in addition to offered by the export credit insuranceExport-Import Bank of Thailand (Exim Bank).

The condition that companies need to be at least 51% Thai-owned should be lifted for access to government loans, said Munenori Yamada, president of the Japan External Trade Organisation (Jetro) in Bangkok.

"In Japan, no matter whether you are a Japanese or foreign firm you receive the same treatment on financial assistance from the government," he said.

The Japanese Chamber of Commerce (JCC) recently asked the Thai government to help ease cashflow problems faced by Japanese SMEs.

The JCC has officially presented its proposal to government agencies including the Finance Ministry. It is seeking greater access for Japanese firms to credit from the Thai SME Bank and the export risk coverage from Exim Thailand.

Exim Thailand yesterday signed an agreement with the Nippon Export and Investment Issuance (Nexi) for trade risk coverage for Japanese affiliates using Thailand as their export base.

Under the agreement, Exim Thailand would offer export credit insurance to Japanese firms and Japanese joint ventures exporting products from Thailand to other countries except Japan.

In case of payment default, arising from commercial or political risk, Exim Thailand will pay compensation of up to 90% of the loss realised.

"We expect more measures will be introduced, though it will take time. Given the large number of SMEs in two nations, If they survive, both would definitely benefit," Mr Yamada said.

He said Japanese legislators were now debating a supplement budget for stimulating the economy, which would pave way for the Japan Bank for International Co-operation (JBIC) and Japan Finance Corporation (JFC) to financially assist 7,000 Japanese businesses in Thailand.

Japan also will ask Asean members meeting in Jakarta next Monday to step up stimulus programmes in the region through infrastructure development.

"We would propose faster trade and financial liberalisation within Asean under the Asean Economic Community (AEC) blueprint which took effect at the beginning of this year," he noted.

Economic liberalization

In a related development foreign investors in Thailand have called for services industry liberalisation to make Thailand more attractive for foreign direct investment.

The Joint Foreign Chamber of Commerce in Thailand (JFCCT) has been pressing for service sector liberalisation for some time and will raise the issue again at its next quarterly meeting with the Board of Investment (BoI).

As Thailand faces the impact of the global financial crisis, the JFCCT believes some structural changes in some areas or bold decisions by the government could turn a crisis into an opportunity.

"Thailand need new boost and it could come with liberalisation of the service sector," Nandor von der Lueche, the JFCCT chairman.

He will raise the issue at a meeting between JFCCT members and Prime Minister Abhisit Vejjajiva in mid-July.

Industry Minister Charnchai Chairungruang said he would seek to discuss the request with the Commerce Ministry for further development.

Mr Charnchai also noted that the new One Start and One Stop Service Center for foreign investors was expected to open by September.

The centre aims to be the only facility investors need for dealing with applications involving many agencies, with shorter approval times as a result.

trade finance - banking services that support the business operations of exporters (See Wikipedia also see US government trade finance guide)
intervened - became involved in an activity (to solve problems and fix things)
alleviate problems - reduce suffering from problems, solve problems
export credits - government support for exporters including: direct credits/financing, refinancing, interest-rate support, export credit insurance and guarantees, and deferred invoicing
export credit insurance, export insurance - insurance designed to guarantee that an exporter will be paid for his/her goods after delivery, protect exporters against commercial and political risks, (note: responsibility for collecting payment from the company that imports the goods in another country, or the company's agent, rests with the underwriter of the export) 
Export-Import Bank of Thailand, Exim bank - government bank established in 1993 to support both Thai investors overseas as well as local investors in business relating to export or business which earns or saves foreign exchange (See website)
inject - put into
allocated to - given to
Small Business Credit Guarantee Corporation (SBCG) - a Thai company established in 1991 to provide "credit guarantees for viable small enterprises which do not have enough collateral to enable them to obtain sufficient credit from the financial institutions" (See website and list of similar companies in other countries)
credit guarantee fund - money set aside by the government to guarantee loans (pay back loans for business people who cannot pay them back themselves)
risk assessment -
evaluating risks and estimating how big they are
instrument -
a legal document
trade finance instruments -
a legal document used in trade finance 
buyer default risk -
when buyers of your product do not pay you for it
Japan External Trade Organisation (JETRO) - the Japanese export promotion agency (See Bangkok website)
Japanese Chamber of Commerce (JCC) - the organisation representing Japanese companies operating in Thailand
cashflow - the movement of money into and out of a business
cashflow problems -
when there is more money going out of a business than coming in so difficult to meet everyday business expenses (working capital)
ease cashflow problems
- having enough cash on hand to meet business expenses (working capital)
export risk coverage, trade risk coverage - insurance to protect from problems when exporting goods
Nippon Export and Investment Insurance (Nexi) - a major Japanese provider of export credit insurance (See website)
an affiliate - a company connected with another larger company in some way  
Japanese affiliates using Thailand as their export base - Japanese companies producing goods in Thailand for export
joint ventures - a business that is owned and ran by two or more companies (rather than one company)
payment default - not paying on time, late with payments
pay compensation - pay money to someone who has been damaged or lost money in some way
the loss realised - the money that the company lost (and was recorded in their accounting records)
Japanese Bank for International Co-operation (JBIC) - a bank owned by the Japanese government, founded in 1999 to "promote economical cooperation between Japan and oversea countries, by providing resources to foreign investments and by fostering international commerce. It also has a major role in promoting Japanese exports and imports, and the country's activities overseas" (See Wikipedia)
Japan Finance Corporation (JFC) - the parent company of JBIC, a policy-based financing institution
step up - increase (intensity of activity)
step up stimulus programmes - more government spending and tax cuts to get the economy growing again
liberalisation - relaxing rules in an industry, making the rules governing an activity less strict
financial liberalisation - relaxing the rules in the financial sector (for banks and stock firms)
services industry liberalisation - reducing regulations in service industries
a blueprint - a plan
Asean Economic Community (AEC) - a plan for the econmic integration of ASEAN states by 2015 with a gradual elimination of barriers to trade and investment in the region (See introduction and description [scroll down])
Foreign Direct Investment (FDI) - when a foreign company invests directly in a business in a country (in a "portfolio investment" an investor only holds stock)
Joint Foreign Chamber of Commerce in Thailand (JFCCT) - an organisation that joins together 22 foreign chambers of commerce and 3 business associations in Thailand (Read description)
Board of Investment (BOI) - the Thai government agency responsible for providing incentives to encourage investment in Thailand (See website)

(Source: Bangkok Post, business, Japanese SMEs more hopeful Aid may expand beyond export credits, NAREERAT WIRIYAPONG AND VICHAYA PITSUWAN, 24/06/2009, link)








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