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Source: Bangkok Post
Thailand could face increasing pressure in 2010 to shift exchange-rate policies in order to maintain competitiveness in the global market, says Kirida Bhaopichitr, senior economist for the World Bank in Bangkok.
Capital flows have been returning to emerging markets such as Thailand since the middle of the year, she said at a seminar held by the Iron and Steel Institute yesterday.
Fund flows have come into not only government bond markets to help finance public stimulus spending, but have also come in the form of foreign direct investments and equity flows.
The result of added capital flows into the Asian economies is added pressure for currencies in the region to appreciate.
At the same time, the US dollar is facing pressure owing to structural weaknesses in the US economy, and has fallen sharply against both the euro and the Japanese yen.
Asian economies have been intervening steadily in their currency markets to slow the pace of currency appreciation and prop up their export sectors.
“With large capital inflows and a weakening US dollar, emerging market currencies are on an appreciating trend,” Dr Kirida said.
The baht has gained 4.8% against the US dollar this year, compared with 3.65% for the Singapore dollar, 8.3% for the Korean won and 16.3% for the Indonesian rupiah. The Bank of Thailand has maintained that it will intervene in the markets only to smooth out volatility rather than seek to shift fundamental market trends.
Most analysts expect the baht to continue to appreciate over the next several months, considering the trend for a weaker dollar and Thailand’s own current account surplus, which hit an eight-month high at $2.17 billion in October. Foreign reserves have risen to $136.9 billion as of late November, compared with $111 billion at the end of 2008.
In any case, Dr Kirida said that pushing a strategy for currency depreciation would involve its own costs. While potentially helping the export sector, a weaker baht would also mean higher costs for imports, including oil, capital equipment and raw materials.
The World Bank currently projects Thai economic growth for 2010 of 3.5%, although this depends in large part on the outlook for the global economy.
Dr Kirida said even as the global recovery is tenuous, oil prices are projected to rise to average $75 per barrel next year, compared with $65 this year.
While oil prices remain far from the $130 level seen in 2008, the increase in energy costs will have a knock-on effect on other commodities, including food.
Pongnakorn Pochakorn, an economist with the Fiscal Policy Office, said the Finance Ministry maintained a base projection of 3.3% growth next year, with estimates from 2.5% to 4.1%.
The effectiveness of the Thai Khem Kaeng infrastructure investment programme will have a significant impact on growth trends in 2010, he said, with the base growth estimate based on a disbursal rate of 70% of the budget set under the spending programme.
“This is a relatively conservative target. If spending under the Thai Khem Kaeng programme increases beyond 70%, there is a chance that economic growth could rise over 3.3% next year,” Mr Pongnakorn said.
In any case, he said that 3.3% growth in 2010, while a considerable turnaround from the contraction of 3% projected this year, remains well under potential GDP growth for Thailand of 5.5% per year.
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