Reducing the impact of baht appreciation
Joint private sector-government initiatives
By Jon Fernquest[Introduction|Vocabulary|Article]
[Reading Questions|Answers]
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To deal with the rising baht, a committee comprised of representatives from the government and the private sector has come up with a list of suggested policy actions.
Aiming to alleviate building pressure on exporters threatened by unrelenting appreciation, the possibility of insolvency and the end of their businesses, these policy actions have a certain sense of urgency about them.
Besides possible policies to alleviate the impact of appreciation, more radical policies that definitely won't be considered by the government, like reverting to the pre-1997 fixed exchange rate system, are also covered in today's article.
It will be interesting to see how fast the government acts on these policy suggestions. If and when the measures are adopted we'll follow the explanations of how the measures work and their economic impact here.
Reading Questions
Here are some questions to guide your reading (See answers at end):1. Who represents local business leaders on the committee for controlling baht appreciation ?
2. What suggestions have been made by the committee for controlling baht appreciation?
3. How might these measures reduce baht appreciation? (Express your opinion)
4. What does Thailand need and not need in order to deal with the recent baht appreciation, according to Finance Minister Dr. Chalongphob and BOT governor Dr. Tarisa?
Bangkok Post Article July 17, 2007
CURRENCY / IMPACT OF STRONG BAHTBusinesses present their wish list
'Liquidity fund' among suggestions DARANA CHUDASRI AND WICHIT CHANTANUSORNSIRILocal business leaders have proposed a set of short-term and medium- to long-term measures to curb the rapid appreciation of the baht and reduce its impact on the real sector.
For a start, they say, the Bank of Thailand should ease the 15-day maximum period for exporters to hold foreign currency, along with curbs on individuals opening and transferring funds from foreign-currency accounts.
Tarisa Watanagase, the central bank governor, indicated late yesterday that some changes would be announced soon along the lines local businesses have suggested.
The baht made slight gains yesterday, closing at 33.26 against the US dollar, against 33.31 on Friday.
The joint private-sector committee has also called on the government to play a role in promoting foreign-currency refinancing with domestic borrowing; speeding up tax refunds and financial assistance to affected businesses.
The committee comprises the Federation of Thai Industries, the Board of Trade of Thailand and the Thai Bankers Association. It submitted the proposals to the Commerce Ministry yesterday.
Apisak Tantivorawong, chairman of the Thai Bankers Association, said the committee wanted the government to pay more attention to the baht as exports were the main force behind the economy.
Large exporters have reported dwindling margins, while smaller exporters have been witnessing a decline in purchase orders.
"It is not right for the government to take the view that exports are still going strong despite the baht's appreciation," Mr Apisak said. "Exporters are still working to maintain their market share, despite the fact that they have begun to run losses."
He said that relaxing rules on foreign currency accounts and allowing individuals to settle expenses via the accounts would help reduce pressure on the baht.
"Those measures can be implemented immediately. Outstanding foreign currency accounts held by corporations and individuals hinge on the central bank's consideration. That should be restricted to local banks or foreign banks registered locally to ensure proper supervision," he said.
The joint committee has also asked the government to establish a fund to support small and medium-sized enterprises experiencing liquidity problems, Mr Apisak said.
"The private sector cannot accept the volatility of the baht which is having an effect daily. We cannot accept it if the baht moves by one baht a week," he said.
Mr Apisak pointed out that the committee's proposal for the government to establish a fund to support foreign-exchange management was in line with the practice in Japan.
Some business leaders have even started to call for a return to a pre-1997 fixed exchange-rate system, but Dr Tarisa is vehemently opposed to the idea.
"Arguments have arisen many times that the central bank should turn back to using the fixed exchange-rate system. This is impossible by any means," she said.
Finance Minister Chalongphob Sussangkarn also said that a return to a currency peg was out of the question.
Dr Tarisa said the central bank had maintained a good dialogue with the private sector and other government agencies on the issue.
"It's our duty to exercise the monetary tools we have to look after the baht. Currently, there is nothing to be worried about," she said.
She said the measures the central bank intended to propose to the Finance Ministry would include relaxation of rules on foreign currency holding and overseas investment by local investors, among others, she said.
The baht's volatility, she said, was highlighted by the fact that the capital inflows in the first week of July equalled the total for the whole of June.
Dr Chalongphob, meanwhile, denied that the country would set a band for the movement of the baht, as China does for its currency, but said that officials would focus on reducing volatility.
"We need to have a flexible foreign-exchange system to reduce economic risks. Almost every country manages their foreign exchange this way. The only thing we need is a tool to manage volatility," he said.
Vocabulary (in discussion above)
x comprised of y - x has y as parts or members
alleviate - make less intense and severe
alleviate the building pressure - reduce the pressure
alleviate the impact of - reduce the bad effects of
unrelenting - never stopping
have a certain sense of urgency about them - are being done in an urgent manner
a wish list - list of things you want
liquidity - the cash or assets quickly convertable into cash possessed by a company (See The Economist and glossary)
a liquidity fund - special loan money for businesses that have liquidity problems because of baht appreciation, such as exporters
curb - stop, prevent, reduce
real sector - companies (excluding financial sector companies like banks), households and nonprofit institutions serving households (Source: Central Bank of Armenia, page 17)
along the lines suggested - following the suggestions
joint - together with
joint private-sector committee - committee in which government works with companies
* promoting foreign-currency refinancing with domestic borrowing
Federation of Thai Industries - aims to: 1. strengthen the private sector and help make industrialization in Thailand more sustainable, 2. synchronize with other ongoing national economic development processes, 3. protect the Thai national interest in the world economic environment (See website)
Board of Trade of Thailand - government agency with many responsibilities related to trade:
1. to coordinate between private and governmental sectors on economic and trade issues, 2. To advise the government on policy to promote and develop trade, 3. "To promote trade of the country, both domestic and international trades as well as to promote the cooperation in trade and economy between countries," 4. "To provide news and information on economy, trade, marketing as well as to disseminate academic research work in relation to economy, trade and investment to the members and relevant authorities." (See website)
Thai Bankers Association - founded in 1958 by a group of leading bankers:
"Since its establishment, TBA has played an active role in representing the banking community in discussions with the Bank of Thailand, Ministry of Finance, Ministry of Commerce, and other government agencies in formulating and implementing key economic and financial policies.TBA collaborated with the Board of trade of Thailand and the Federation of Thai Industries in establishing the Joint Public - Private Consultative Committee , a prominent forum to discuss on-going national issues with the government, which often results in very fruitful adjustment of government policies or amendment of laws and regulations that are conducive to efficient practices in trade and investment.
TBA also promotes member banks to exchange information and experiences in their conduct of business with a view to enhancing their productivity and efficiency. Such a cooperation is carried out by the various clubs, e.g., the International banking Club, the Thai Forex Club, the Banking Accountants Club, etc.
TBA is also a founding member of the ASEAN Bankers Association, which meets annually to foster cooperation among bankers in the ASEAN countries. Their recent cooperation includes the Y2K solution, corporate debt restructuring workshops, and strategy to meet intensifying competition in the coming years.
TBA works closely with the Foreign Banks Association in various banking issues, including improving the payment system, formulating guidelines for orderly workouts, and organizing joint charity activities." (See website)
margins - profit margins, profitability
dwindling margins - falling profits
purchase orders - a commercial document issued by a buyer to a seller, indicating the type, quantities and agreed prices for products or services that the seller will provide to the buyer (See Wikipedia on purchase orders)
decline in purchase orders - decline in sales
relaxation - reducing strength
relaxing rules on, relaxation of rules on - reducing the strength and strictness of rules on
settle expenses via the accounts - use money in bank accounts to pay bills
outstanding - still exists (not been settled and closed)
outstanding foreign currency accounts - foreign currency accounts that still exist
hinge on - depends completely on
experiencing liquidity problems - don't have enough cash to operate the business properly (lacks adequate working capital)
volatility - changing more than expected or desired, changing suddenly and unexpectedly
fixed exchange-rate system - when a currency's value is matched to the value of another currency or to a basket of currencies, or to another measure of value such as gold, as the reference value rises and falls so does the currency pegged to it, the opposite of a fixed exchange rate is a floating exchange rate (See Wikipedia and The Economist on exchange rates)
vehemently - with strong and forceful emotion and feeling
vehemently opposed - to oppose with great feeling and emotion
maintained a good dialogue - had continued and productive discussions
x highlighted by the fact that y - y is proof of x
set a band for the movement of the baht - keep baht near target amount
Answer Key:
1. Who represents local business leaders on the committee for controlling baht appreciation ?
The committee includes representatives from:
a. Federation of Thai Industries
b. Board of Trade of Thailand
c. Thai Bankers Association
2. What suggestions have been made by the committee for controlling baht appreciation?
a. Ease the 15-day maximum period for exporters to hold foreign currency
b. Ease curbs on individuals opening and transferring funds from foreign-currency accounts.
c. Promoting foreign-currency refinancing with domestic borrowing
d. Speeding up tax refunds and financial assistance to affected businesses.
e. Establish a fund to support small and medium-sized enterprises experiencing liquidity problems.
3. How might these measures reduce baht appreciation? (Express your opinion)
4. What does Thailand need and not need in order to deal with the recent baht appreciation, according to Finance Minister Dr. Chalongphob and BOT governor Dr. Tarisa?
a. Does not need a return to the fixed exchange rate system of the past.
b. Does not need a currency peg.
c. Does need to maintain a dialogue with the private sector and other government agencies.
d. Does need a relaxation of rules on foreign currency holding by local investors.
e. Does need a relaxation of rules on overseas investment by local investors.
f. Does not need to set a band for the movement of the baht like China uses.
g. Does need a flexible foreign exchange system for reducing economic risks like almost every country has.
h. Does need a tool for reducing volatility.
