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What to expect in Thailand's economic future?
Interview with BOT governor Tarisa Watanagase

By Jon Fernquest

Tarisa Watanagase, governor of the Bank of Thailand, gave an interview to Bloomberg published on Friday. She commented on the global economic crisis:

This is a crisis that happened elsewhere and we don’t have a lot of control over it. The effect will come through the trade channel. Now, we have to pin our hopes on domestic investment and consumption.

But as economist Brad Setser explains:

Asian nations responded to the crises of the 1990s by taking a slew of steps to reduce their vulnerability to capital account crises, but in the process increased their vulnerability to “current account crises.” Their economies became more dependent on exports, and more of their exports came from countries whose external and internal finances looked a bit shaky …

One big question going forward is how will Asian nations try to reduce their vulnerability to crisis that come from the current account ….(See Council on Foreign Relations, 13-02-09, link)

Harvard economist Kenneth Rogoff suggests domestic healthcare and education are the sectors to look at for investment opportunities (Read article).

Thailand's credit crunch

Tarisa states:

"Thailand’s central bank is unlikely to lower borrowing costs to zero..."

This raises the question: "How effective is Thai monetary policy nowadays?"

The US central bank lowered interest rates to zero because the US is in a liquidity trap. Thailand may not be in a liquidity trap but Thai commercial banks:

1. Face increased lending risk due to global export market uncertainty

2. Are not reducing their rates or lending more in response to lower Thai central bank interest rates (Read article1 and article2)

Government loan guarantees initiated by the government last week may overcome the credit crunch (Read article1 , article2, and today's article).

The oligopolistic nature of the banking industry, a hot topic a few weeks ago in Thai news, was the subject of an interview with former IMF chief economist Simon Johnson (Watch video, read transcript, and get background on Simon Johnson)

the effect will come through the trade channel - exports have fallen greatly with the global economic slump, this is annegative economic for Asian exporting countries including China and Thailand
pin our hopes on Y - hope that Y will be the solution to the problem
a slew of Y - a large quantity of Y
capital account - money coming into and going out of a country from investments and loans
current account - money coming into and going out of a country from imports and exports of goods and services and income from investments
effective - solves the problem, actually works
monetary policy - the policy of the central bank in influencing the cost and availability of credit through interest rates and other measures, with the goals of promoting economic growth, full employment, price stability and balanced trade with other countries (See Google definitions)
liquidity trap - A situation in which expansionary monetary policy fails to stimulate the economy. As used by Keynes (1936), this meant interest rates so low that expectations of their increase made people unwilling to hold bonds. Today it usually means a nominal interest rate so near zero that lowering it further is impossible or ineffective. (See glossary at University of Michigan and Google definitions)
loan guarantees - when someone promises to pay the loan back if the borrower cannot pay it back
credit - total loans in an economy
credit crunch - a reduction in the amount of loans in an economy
oligopoly, oligopolistic nature - the control of an industry by a small group of companies (See Wikipedia)

Here is the interview in full:

Thai Central Bank Says Crisis in 2009 Less Severe Than 1997

By Shanthy Nambiar and Suttinee Yuvejwattana

Feb. 13 (Bloomberg) -- Thailand’s central bank said the nation’s economy will be able to better withstand the global credit crisis than in 1997 because of the resilience of local companies and banks.

“Since the last crisis, we have put in a lot of effort and energy to strengthen our system,” Bank of Thailand Governor Tarisa Watanagase, 59, said in an interview yesterday in Bangkok. “Our capability to withstand the storm is very much different than in 1997. Banks don’t have solvency or liquidity problems.”

Thailand and other export-dependent countries are cutting interest rates and rolling out stimulus packages to buoy consumption as their main markets in the U.S., Japan and Europe contract. The Bank of Thailand and the government plan to ease curbs on foreign ownership of local banks and consider new banking licenses to lure overseas investment and spur lending.

Prime Minister Abhisit Vejjajiva is also boosting spending and waiving taxes to spur expansion.

withstand - strong enough not to be destroyed or harmed by a bad event
resilience - able to recover quickly from a disaster, strong and not easily damaged (See glossary)
capability to withstand the storm - ability avoid economic damage during the economic downturn
solvent (adjective) - 1. company has enough money to pay debts, 2. company has more assets than liabilities (See glossary)
solvency (noun) - business generating enough income to continue doing business
insolvency - business not generating enough income to stay in business
liquidity - having enough cash (or assets convertable to cash) to continue in business and continue paying off debt and liabilities
export-dependent countries - countries that need exports to continue their fast growth rates
rolling out - introducing
buoy consumption - keep households spending money and consuming (rather than hoarding money in case there are even bigger problems in the future)
a curb - a rule or law prohibiting an activity
ease curbs - reduce curbs
banking licenses - official government permission to carry on a banking business inside the country
lure - persuade someone to do something by making it look very attractive (See glossary)
waive - give permission not follow rules and regulations
waiving taxes - give permission not to pay a tax
spur - cause to happen
spur expansion - cause the economy to grow bigger

Tarisa said she still expects the economy to expand in 2009, even after a contraction in the fourth quarter of last year and probably another in the current period.

Gross domestic product may expand no more than 2 percent in 2009, the slowest pace since the 1998 Asian financial crisis, the central bank said.

The economy probably contracted 3.5 percent in the fourth quarter and may shrink in the three months to March 31, the Finance Ministry said Jan. 29.

“This is the crisis that happened elsewhere and we don’t have a lot of control over it,” Tarisa said. “The effect will come through the trade channel. Now, we have to pin our hopes on domestic investment and consumption.”

contraction, economic contraction - when economic activity and incomes fall
GDP, Gross Domestic product - a measure of economic activity in a country, the value of the country's output of goods and services. GDP is defined roughly as: GDP = Household Consumption + Business Investment + Change in Inventories + (Government Spending - Taxes) + (Exports - Imports) (See Economist Glossary)
pace - the speed and rhythm of something (See glossary)

Biggest Threat

The slowdown in global economic growth and the credit crunch have overtaken inflation as the biggest threat to Southeast Asia’s second-largest economy, said Tarisa, who has led the bank since 2006 as the bank’s first female governor.

Abhisit, elected by parliament in December, plans to spend an extra 116.7 billion baht ($3.3 billion) on cash handouts to the elderly and free school supplies among other measures. The funds are in addition to 10 billion baht in tax breaks aimed at boosting property sales, supporting tourism and helping small businesses.

Loosening restrictions on foreign banks is aimed at “bringing benefits to the financial sector, to the consumers,” Tarisa said yesterday.

“The government’s measures can alleviate the problems, but they can’t solve them,” said Prasarn Trairatvorakul, president of Kasikornbank Pcl, the nation’s third-largest lender. “There are limitations.”

X overtaken Y - X has gone past Y, X is now more important than Y
cash handouts - money given to people for free
tax breaks - tax cuts
alleviate the problems - solve the problems, reduce the damage done

Worst Performance

Thailand’s benchmark equity SET Index posted its worst annual performance in 11 years in 2008, falling by almost 48 percent. This year, it has dropped another 2.1 percent.

Asian governments have unveiled more than $685 billion worth of stimulus measures to buffer their economies from the worst global recession since the 1930s. Singapore last month announced a $13.7 billion spending package, while Malaysia is planning a second round of measures after a $1.9 billion program outlined in November.

The Bank of Thailand has lowered its benchmark interest rate to 2 percent in cuts totaling 1.75 percentage points since December and “has the room” to continue cutting borrowing costs when policy makers next meet on Feb. 25, Tarisa said.

unveilled - introduce something new
fiscal stimulus - either increases in government spending or tax cuts made in order to get economic activity and growth going again
stimulus measures - the individual government programmes of tax cuts or spending
a second round - for a second time
benchmark interest rate - the interest rate that the central bank officially uses to drive its policy (when this interest rate moves other related interest rates also move in the same direction)

Slashing Costs

Thailand’s central bank is unlikely to lower borrowing costs to zero because the country is “not at the epicenter of the problem like the U.S. and the U.K.,” Tarisa said.

Consumer prices in Thailand dropped 0.4 percent from a year earlier in January, the first contraction since October 1999, and may decline in some months this year, Tarisa said.

The baht currency has extended last year’s 15 percent loss against the dollar on speculation [that] a deepening economic slump will prompt foreigners to further trim their holdings. The baht, which has fallen 1.4 percent this year, was 0.1 percent lower at 35.16 per dollar as of 7:53 a.m. in Bangkok.

“We don’t see significant capital outflows,” said Tarisa, who will retire next year. “The baht is still competitive.”

slashing costs - reducing costs
at the epicenter - at the center of an earthquake (where there is most damage)
trim their holdings - reduce the amount they own
extended last year's 15 percent loss - continued last year's 15 percent loss
X on speculation that Y - X happened because people believe that y might happen in the future
capital outflows - when investment money comes into a country

(Source: Bloomberg, 13-02-09, Thai Central Bank Says Crisis in 2009 Less Severe Than 1997, Shanthy Nambiar and Suttinee Yuvejwattana, link)

Posted by Jon Fernquest at 01:01 PM | Permalink | Comments (0)

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Interview with BOT governor Tarisa Watanagase By Jon Fernquest Tarisa Watanagase, governor of the Bank of Thailand, gave an interview to Bloomberg published on Friday. She commented on the global economic crisis: This is a crisis that happened elsewhere and we don’t have a lot of control over it. The effect will come through the trade channel. Now, we have to pin our hopes on domestic investment and consumption. But as economist Brad Setser explains: Asian nations responded to the crises of the 1990s by taking a slew of steps to reduce their vulnerability to capital account crises, but in the process increased their vulnerability to “current account crises.” Their economies became more dependent on exports, and more of their exports came from countries whose external and internal finances looked a bit shaky … One big question going forward is how will Asian nations try to reduce their vulnerability to crisis that come from the current account ….(See Council on Foreign Relations, 13-02-09, link) Harvard economist Kenneth Rogoff suggests domestic healthcare and education are the sectors to look at for investment opportunities (Read article). Thailand's credit crunch Tarisa states: "Thailand’s central bank is unlikely to lower borrowing costs to zero..." This raises the question: "How effective is Thai monetary policy nowadays?" The US central bank lowered interest rates to zero because the US is in a liquidity trap. Thailand may not be in a liquidity trap but Thai commercial banks: 1. Face increased lending risk due to global export market uncertainty 2. Are not reducing their rates or lending more in response to lower Thai central bank interest rates (Read article1 and article2) Government loan guarantees initiated by the government last week may overcome the credit crunch (Read article1 , article2, and today's article). The oligopolistic nature of the banking industry, a hot topic a few weeks ago in Thai news, was the subject of an interview with former IMF chief economist Simon Johnson (Watch video, read transcript, and get background on Simon Johnson) the effect will come through the trade channel - exports have fallen greatly with the global economic slump, this is annegative economic for Asian exporting countries including China and Thailand pin our hopes on Y - hope that Y will be the solution to the problem a slew of Y - a large quantity of Y capital account - money coming into and going out of a country from investments and loans current account - money coming into and going out of a country from imports and exports of goods and services and income from investments effective - solves the problem, actually works monetary policy - the policy of the central bank in influencing the cost and availability of credit through interest rates and other measures, with the goals of promoting economic growth, full employment, price stability and balanced trade with other countries (See Google definitions) liquidity trap - A situation in which expansionary monetary policy fails to stimulate the economy. As used by Keynes (1936), this meant interest rates so low that expectations of their increase made people unwilling to hold bonds. Today it usually means a nominal interest rate so near zero that lowering it further is impossible or ineffective. (See glossary at University of Michigan and Google definitions) loan guarantees - when someone promises to pay the loan back if the borrower cannot pay it back credit - total loans in an economy credit crunch - a reduction in the amount of loans in an economy oligopoly, oligopolistic nature - the control of an industry by a small group of companies (See Wikipedia) Here is the interview in full: Thai Central Bank Says Crisis in 2009 Less Severe Than 1997 By Shanthy Nambiar and Suttinee Yuvejwattana Feb. 13 (Bloomberg) -- Thailand’s central bank said the nation’s economy will be able to better withstand the global credit crisis than in 1997 because of the resilience of local companies and banks. “Since the last crisis, we have put in a lot of effort and energy to strengthen our system,” Bank of Thailand Governor Tarisa Watanagase, 59, said in an interview yesterday in Bangkok. “Our capability to withstand the storm is very much different than in 1997. Banks don’t have solvency or liquidity problems.” Thailand and other export-dependent countries are cutting interest rates and rolling out stimulus packages to buoy consumption as their main markets in the U.S., Japan and Europe contract. The Bank of Thailand and the government plan to ease curbs on foreign ownership of local banks and consider new banking licenses to lure overseas investment and spur lending. Prime Minister Abhisit Vejjajiva is also boosting spending and waiving taxes to spur expansion. withstand - strong enough not to be destroyed or harmed by a bad event resilience - able to recover quickly from a disaster, strong and not easily damaged (See glossary) capability to withstand the storm - ability avoid economic damage during the economic downturn solvent (adjective) - 1. company has enough money to pay debts, 2. company has more assets than liabilities (See glossary) solvency (noun) - business generating enough income to continue doing business insolvency - business not generating enough income to stay in business liquidity - having enough cash (or assets convertable to cash) to continue in business and continue paying off debt and liabilities export-dependent countries - countries that need exports to continue their fast growth rates rolling out - introducing buoy consumption - keep households spending money and consuming (rather than hoarding money in case there are even bigger problems in the future) a curb - a rule or law prohibiting an activity ease curbs - reduce curbs banking licenses - official government permission to carry on a banking business inside the country lure - persuade someone to do something by making it look very attractive (See glossary) waive - give permission not follow rules and regulations waiving taxes - give permission not to pay a tax spur - cause to happen spur expansion - cause the economy to grow bigger Tarisa said she still expects the economy to expand in 2009, even after a contraction in the fourth quarter of last year and probably another in the current period. Gross domestic product may expand no more than 2 percent in 2009, the slowest pace since the 1998 Asian financial crisis, the central bank said. The economy probably contracted 3.5 percent in the fourth quarter and may shrink in the three months to March 31, the Finance Ministry said Jan. 29. “This is the crisis that happened elsewhere and we don’t have a lot of control over it,” Tarisa said. “The effect will come through the trade channel. Now, we have to pin our hopes on domestic investment and consumption.” contraction, economic contraction - when economic activity and incomes fall GDP, Gross Domestic product - a measure of economic activity in a country, the value of the country's output of goods and services. GDP is defined roughly as: GDP = Household Consumption + Business Investment + Change in Inventories + (Government Spending - Taxes) + (Exports - Imports) (See Economist Glossary) pace - the speed and rhythm of something (See glossary) Biggest Threat The slowdown in global economic growth and the credit crunch have overtaken inflation as the biggest threat to Southeast Asia’s second-largest economy, said Tarisa, who has led the bank since 2006 as the bank’s first female governor. Abhisit, elected by parliament in December, plans to spend an extra 116.7 billion baht ($3.3 billion) on cash handouts to the elderly and free school supplies among other measures. The funds are in addition to 10 billion baht in tax breaks aimed at boosting property sales, supporting tourism and helping small businesses. Loosening restrictions on foreign banks is aimed at “bringing benefits to the financial sector, to the consumers,” Tarisa said yesterday. “The government’s measures can alleviate the problems, but they can’t solve them,” said Prasarn Trairatvorakul, president of Kasikornbank Pcl, the nation’s third-largest lender. “There are limitations.” X overtaken Y - X has gone past Y, X is now more important than Y cash handouts - money given to people for free tax breaks - tax cuts alleviate the problems - solve the problems, reduce the damage done Worst Performance Thailand’s benchmark equity SET Index posted its worst annual performance in 11 years in 2008, falling by almost 48 percent. This year, it has dropped another 2.1 percent. Asian governments have unveiled more than $685 billion worth of stimulus measures to buffer their economies from the worst global recession since the 1930s. Singapore last month announced a $13.7 billion spending package, while Malaysia is planning a second round of measures after a $1.9 billion program outlined in November. The Bank of Thailand has lowered its benchmark interest rate to 2 percent in cuts totaling 1.75 percentage points since December and “has the room” to continue cutting borrowing costs when policy makers next meet on Feb. 25, Tarisa said. unveilled - introduce something new fiscal stimulus - either increases in government spending or tax cuts made in order to get economic activity and growth going again stimulus measures - the individual government programmes of tax cuts or spending a second round - for a second time benchmark interest rate - the interest rate that the central bank officially uses to drive its policy (when this interest rate moves other related interest rates also move in the same direction) Slashing Costs Thailand’s central bank is unlikely to lower borrowing costs to zero because the country is “not at the epicenter of the problem like the U.S. and the U.K.,” Tarisa said. Consumer prices in Thailand dropped 0.4 percent from a year earlier in January, the first contraction since October 1999, and may decline in some months this year, Tarisa said. The baht currency has extended last year’s 15 percent loss against the dollar on speculation [that] a deepening economic slump will prompt foreigners to further trim their holdings. The baht, which has fallen 1.4 percent this year, was 0.1 percent lower at 35.16 per dollar as of 7:53 a.m. in Bangkok. “We don’t see significant capital outflows,” said Tarisa, who will retire next year. “The baht is still competitive.” slashing costs - reducing costs at the epicenter - at the center of an earthquake (where there is most damage) trim their holdings - reduce the amount they own extended last year's 15 percent loss - continued last year's 15 percent loss X on speculation that Y - X happened because people believe that y might happen in the future capital outflows - when investment money comes into a country (Source: Bloomberg, 13-02-09, Thai Central Bank Says Crisis in 2009 Less Severe Than 1997, Shanthy Nambiar and Suttinee Yuvejwattana, link) Posted by Jon Fernquest at 01:01 PM \| Permalink \| Comments (0)
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