Supavud Saicheua on Thailand's economic woes
By Jon Fernquest
The
unemployment problem resulting from the global
economic downturn
will be the
greatest concern
to Thailand.This is the view of Supavud Saicheua, managing director and head of research for Phatra Securities
[This article is a shortened and simplified version from Sunday's Bangkok Post]
SMEs without deep pockets to weather the coming economic storm are likely to fail quite easily. When they fail their employees will lose their jobs.
Larger companies with deeper pockets will suffer from decreased profits or a slight loss but their balance sheets should remain strong. Larger companies are also likely to start downsizing their work force.
Unemployment will come in several different forms: "You will have people with experience being laid off, you will have new graduates unable to find jobs, you will have transient workers who in the past came to cities to find work during the dry season not being able to find work."
Anecdotal evidence suggests that unemployment will bring with it social problems and an increase in crime:
"...unemployment
would lead to major
social problems, with a spike
in the crime rate likely. That crime
could be increasing already is indicated by increased sales of burglar
alarms by a company operated by the family of one of Mr
Supavud's
colleagues.
All of the buyers had apparently been the victims of
robbers."
woes - problems,
things causing great sadness
unemployment - the percentage of people who want to work but can't find jobs (See Wikipedia)
global economic downturn - when there is less economic activity and reduced incomes every place in the world
a concern - a fact or situation that worries you
the greatest concern - the fact or situation that worries you the most
Phatra Securities - one of the leading securities companies in Thailand, engaging in three different types of securities business: securities brokerage, investment banking, and investment, included in the SET 100 (See website and company overview)
deep pockets - has a lot of cash or wealth that can be used
weather the coming economic storm - survive until the end of bad economic times
downsizing their workforce - reducing the number of employees in the company
people with [work] experience - people with valuable experience in a certain job
laid off - lose job because there is no more work to do
transient workers - temporary workers (construction workers or taxi drivers, for example)
anecdotal evidence - evidence from a story or anecdote, only one case so not strong scientific proof (See Wikipedia)
a spike in the crime rate - a sudden sharp increase in the crime rate
burglar alarms - a system that detects illegal entry into a house by a thief and notifies the police or private security firm as well as making a loud sound like ringing a bell (See Wikipedia and how-stuff-works)
colleagues - people he works with
unemployment - the percentage of people who want to work but can't find jobs (See Wikipedia)
global economic downturn - when there is less economic activity and reduced incomes every place in the world
a concern - a fact or situation that worries you
the greatest concern - the fact or situation that worries you the most
Phatra Securities - one of the leading securities companies in Thailand, engaging in three different types of securities business: securities brokerage, investment banking, and investment, included in the SET 100 (See website and company overview)
deep pockets - has a lot of cash or wealth that can be used
weather the coming economic storm - survive until the end of bad economic times
downsizing their workforce - reducing the number of employees in the company
people with [work] experience - people with valuable experience in a certain job
laid off - lose job because there is no more work to do
transient workers - temporary workers (construction workers or taxi drivers, for example)
anecdotal evidence - evidence from a story or anecdote, only one case so not strong scientific proof (See Wikipedia)
a spike in the crime rate - a sudden sharp increase in the crime rate
burglar alarms - a system that detects illegal entry into a house by a thief and notifies the police or private security firm as well as making a loud sound like ringing a bell (See Wikipedia and how-stuff-works)
colleagues - people he works with
On Thai exports
While Asia is in better shape than the West, Mr Supavud pointed out that Asian countries are in fact suffering from decreased exports that have plunged by 20-30%.In the case of Thailand, exports amount to up to 65% of the GDP. A 20% reduction in exports means around a 13% decrease in GDP.
"We have lost global demand, which is a sizeable chunk of our income, and that's why capacity utilisation fell from around 70% to 58% over the past three to four months. If this continues there will be a lot more lay-offs, because you cannot justify current employment on current capacity utilisation."
X in better shape than Y - X
is healthier and stronger than Y
lost global demand - foreign countries have reduced the amount of exports they buy
a sizeable chunk of our income - a large percentage of our income
capacity utilization - the percentage of total possible production that is currently being produced
lost global demand - foreign countries have reduced the amount of exports they buy
a sizeable chunk of our income - a large percentage of our income
capacity utilization - the percentage of total possible production that is currently being produced
On the American origins of the problem
The bursting of the asset bubble in the US has also caused enormous damage, Mr Supavid remarked, with the wealth lost by Americans and Europeans is about one third to one half of global GDP. People are feeling much poorer than before and therefore they are saving more and consuming less, he said.Mr Supavud added that the two key impacts - impaired banks now unable to provide liquidity for normal functioning of business, and the negative wealth effect that reduces consumption - are leading to excess global capacity and this is what is causing lay-offs to mount. One estimate is that up to 40 million people worldwide will lose their jobs.
Mr Supavud quoted Merrill Lynch as arguing that the wealth lost by Americans is about $13 trillion, which is equivalent to one year of the country's GDP. This could lead to an immediate 10% or more cutback in consumption which could last for a while.
provide liquidity for normal
functioning of business - provide cash loans for finance
business operations (working capital) (See Wikipedia)
wealth effect - when wealth is reduced, then people save more and consume less (wealth reduced from falling housing prices or falling value of stock and bond investments)
causing lay-offs to mount - causing more job losses
excess global capacity - the world could produce a lot of goods and services but no one wants to consume it all
cutback in consumption - reductions in consumption
wealth effect - when wealth is reduced, then people save more and consume less (wealth reduced from falling housing prices or falling value of stock and bond investments)
causing lay-offs to mount - causing more job losses
excess global capacity - the world could produce a lot of goods and services but no one wants to consume it all
cutback in consumption - reductions in consumption
Investment, not handouts
On the Thai government's decision to give away 2,000 baht to those earning less than 15,000 baht a month, Mr Supavud commented that this action is meant to shore up demand in the short term, but it is an extremely short-term solution. That's because those entitled would be receiving the money in April and will use it by May, and the uplift ends there."It would be much better to use that money to create a multi-year public works programme that employs people who would otherwise be unemployed and employ them for a couple of years. Now, not only would you give these people purchasing power for a two-year period, you would also have a nice new road or subway and that can generate recurring income for the next 30 years.
"You want to invest, you don't want to give money away. I think the government realises this. They are sort of implying that they understand now that they should be thinking about investing."
On the banking system
While agreeing with the Bank of Thailand's move to slash interest rates because to encourage consumption, Mr Supavud said it is unfortunate that Thai banks are reluctant to cut lending rates."So the benefit of rate cuts has gone to the banks and not to the borrowers and definitely not the savers, because the idea is to discourage savings."
Although he expressed the belief that the Bank of Thailand should not interfere with market mechanisms, Mr Supavud thinks the questions central bankers should ask are whether banks are in a competitive enough environment and whether there are too few players. "You want more competition to provide better lending for borrowers."
Mr Supavud has observed that since the Asian crisis of 1997 the Bank of Thailand has consistently wanted strong banks and that is certainly the case now.
"The fact that in a recession the banks can widen the spread. That means that these banks won't be hurt in this recession, which is good for the banks. But you have to ask yourself whether this is good for the country as whole, for the system as a whole."
slash interest rates
- reduce interest rates
reluctant to - unwill to do, hesitate to do
interfere with market mechanisms - when the government enters the market and starts buying and selling to influence prices (often costly and inefficient)
in a competitive enough environment - in an environment where banks have to compete for customers and for lenders
has consistently wanted strong banks - after 1997 many Thai banks failed or almost failed, thus post-1997 wanted stronger banks that would not fail
in a recession the banks can widen the spread - in a recession banks can increase the difference between interest rates given on deposits and lending rates
reluctant to - unwill to do, hesitate to do
interfere with market mechanisms - when the government enters the market and starts buying and selling to influence prices (often costly and inefficient)
in a competitive enough environment - in an environment where banks have to compete for customers and for lenders
has consistently wanted strong banks - after 1997 many Thai banks failed or almost failed, thus post-1997 wanted stronger banks that would not fail
in a recession the banks can widen the spread - in a recession banks can increase the difference between interest rates given on deposits and lending rates
(Source: Bangkok Post, 8/03/2009, UNEMPLOYMENT THE BIGGEST DANGER, Nina Suebsukcharoen, link)
