Government Accelerating Efforts to Cope with Appreciation of the Baht

(31/01/2013)

All relevant agencies have been instructed to seek measures to cope with the ongoing appreciation of the baht, which has affected small and medium-sized enterprises (SMEs). Prime Minister Yingluck Shinawatra on 30 January 2013 called a meeting of economic ministers to discuss ways to deal with the stronger baht. Also attending the meeting were senior officials from the Ministry of Finance, the Ministry of Industry, the Ministry of Labor, the Bank of Thailand, the Office of the National Economic and Social Development Board, and the government-appointed committee to help SMEs. According to a report from the Bank of Thailand, the appreciation of the baht stemmed from an influx of foreign funds to invest in the Stock Exchange of Thailand and bond markets. The foreign direct investment inflow is likely to be a short-term activity. The central bank is closely monitoring the situation. Precautionary measures have been prepared and will be introduced if necessary. The meeting shared the view that Thai companies should be encouraged to invest more in foreign countries to help maintain the balance of the Thai currency in the long run. Thai investors invested about eight billion US dollars overseas in 2012. A meeting of economists and financial experts would also be held to discuss whether monetary measures would be necessary or not to deal with the short-term influx of foreign funds. However, there would be no interference in the market mechanism. As for SMEs, the Government and the Federation of Thai Industries, the Board of Trade of Thailand, and various financial institutions would come up with measures to provide more assistance to them. In this regard, financial institutions would be asked to extend the repayment period for SMEs. The Federation of Thai Industries had submitted a proposal to the Bank of Thailand to help SMEs cope with impacts of the stronger baht. It is confident that the central bank will be able to stabilize the Thai currency. The central bank explained that the baht strength was in line with regional currencies and that it has kept a close watch on the movements of the foreign exchange market. Since the appreciation of the baht will make Thai products more expensive for overseas buyers, the Bank of Thailand stated that exporters should be provided with more knowledge about the use of payments made in local currencies. Moreover, during the appreciation of the baht, imports of machinery and equipment should be accelerated to create a balance of capital outflows and inflows. The Government plans to invest in major infrastructure development, which will require imports of both machinery and equipment for many projects. The management of volatile capital flows and impacts of exchange rate fluctuations on the real economy have been cited as one of the major challenges in Thailand’s monetary policy for 2013.