By Naewna and Reuters – published by Yahoo!News
WITH the Thai baht having rapidly gained strength and businesses urging the central bank to take measures to stabilise the Thai currency, a warning was issued by TPI Polene Plc CEO Prachai Leophairatana today (Sep. 29) that a repeat of the 1997 “Tom Yum Kung” crisis could recur unless action was quickly taken.
Last Monday morning (Sep. 23), the baht hovered around 32.8 to the US dollar, trading at its strongest level in more than 19 months. It has gained 13% against the dollar since a low in April of 37.17. This morning the rate was 32.37 to the dollar.
Prachai pointed to 11 outcomes of the stronger baht while mentioning that if US interest rates decrease but those in Thailand rise this would strengthen the Thai currency.
Swings upward or downward of the baht/dollar exchange rate by 10% likewise leads to production cost rising or falling by 20%. A 20% jump in production cost leads to price of goods produced at the same cost of competitors likewise rising by 20% and Thai manufacturers then unable to compete.
This sharp jump in production cost will result in a 20% drop in the manufacture of primary goods while manufacturers will stop producing secondary and tertiary products.
Should the economy reach this juncture there will be 11 outcomes as follows:
1) Factory closures;
2) Increase in unemployment;
3) Drop in consumption as workers don’t have money to spend;
4) No investment in expanding factories;
5) Increase in household and business non-performing loans;
6) As banks have to increase reserves to cover bad debts, this in turn pushes up the cost of borrowing;
7) Banks stop lending to businesses with NPLs further pressuring them;
8) The government collects less income tax, VAT and other fees which reduces the national budget;
9) Government spending is cut;
10) GDP is reduced;
11) Foreign exchange reserves must be reduced.
Prachai said that if the country is unable to export a lot of products while lots of factories are shut down, more goods would have to be imported from other countries with foreign exchange reserves then dwindling and this could trigger another “Tom Yum King” crisis.
CAPTIONS:
Top and Front Page: Thai baht notes. Photos: Thai Rath
Insert: TPI Polene Plc CEO Prachai Leophairatana. Photo: Naewna
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