Many people are questioning how the Thai Baht seems to effortlessly maintain and even strengthen in the face of all the current political uncertainty.
To answer that question requires a look at the fundamentals of the currency. The economy has moved out of recession (Thailand only moved into recession as a result of the global financial crisis) and is poised to show good economic growth in 2010. Thailand’s foreign exchange reserves are in the region of US Dollars 140 Billion and rising. Thailand’s current account is in surplus, meaning that this country has a surplus in its dealing with the outside world. Thailand’s Government Debt is well within the 60% of GDP (Gross Domestic Product) recommended to countries by the IMF (International Monetary Fund).
The private sector banking industry in Thailand is in a healthy state; Thailand’s banks did not participate in the abusive lending practices of many countries in the West. Thailand, in conjunction with the rest of South East Asia, learned some valuable lessons in the Asian financial crisis of 1997 – 1998.
Thailand is in a very different position to, say, Greece. Thailand is similar to a company making a profit; its trajectory, excluding any unforeseeable political outcomes to the negative, is excellent.
Greece has been living beyond its means for years; it should never have been allowed into the Euro currency bloc. It seems now that, with deeper examination by the IMF, the real financial position of Greece is worse than previously believed.
Greece is in a very nasty position; their problems are caused by successive national governments spending more than they earned in taxation. This gap has now reached a level approximately at 120% of GDP –twice the IMF’s recommended maximum.
They are effectively up to their necks in debt, with a Euro currency there is no easy escape route.
European politicians, led by Germany, are starting to look at the costs of a Greek bailout – early estimates of over two hundred billion Euros by 2015. At that level it may be cheaper to give Greece some cash and ask them to revert to their original currency. How Greece is supposed to escape a debt trap by adding even more debt does not make sense.
Whilst mulling this over, one must add the possibilities of Portugal or Spain joining the problems.
Looking at other currencies common among the expat community in Thailand must include the Pound Sterling and US Dollar.
The former is running massive deficits and is moving over the 60% Government debt to GDP ratio. The economy in out of recession, just, certainly not at the speed of Thailand’s recovery or even close.
The UK’s political outlook is clouded until after election results and even then it all depends on the figures.
Britain will no doubt recover and probably at a quicker pace than often anticipated. The economy is burdened by high consumer and government debt and large parts of the banking system are still in Government hands.
It will be some time before the Bank of England can raise interest rates from their historic low of 0.5%. One factor that is of concern to the Bank of England is inflation but most of that is caused by Sterling depreciation over the past two to three years. Many British residents are feeling the pain of dealing with a weak Pound and strong Baht – a very unpleasant combination.
The US Dollar is different to every other currency as it serves as the world’s Reserve currency and is the base currency for almost everything in the greater commodity world.
Hopes that the Euro would replace the Dollar in many minds as the Reserve currency have been dealt a severe blow with the Greek crisis.
Naturally, the US Dollar has problems, too much debt, budget deficits too high, etc. It has shown its mettle even in the depths of the global crisis. In late 2008 the dollar was the refuge of last resort. Most of the latest US economic data points to a recovery in the US economy.
Many Pound Sterling thinkers have noted the disappearance of the days when the Pound/Baht exchange was over 70. The Pound is now trading at around US$ 1.50 which is the exchange rate that for decades has been judged as being fair value. When the Pound Sterling reaches two US Dollars then the former is overvalued.
The Bank of Thailand – central bank – has a declared policy of keeping the Baht broadly in line with other regional currencies. Any references to Malaysia and Singapore will reflect the success of this policy.
Unless the political situation deteriorates sharply or the impasse continues for a long time, the Thai Baht will remain strong.
Thailand has a broad economy, and benefits greatly from such areas as automobile manufacturing and substantial exports, to a large agricultural industry. Tourism is important to Thailand but in reality it is less than 7% of Thailand’s Gross Domestic Product.
Thailand’s main stockmarket index, the SET (Stock Exchange of Thailand) composite, has been the victim of the recent political turmoil, although losses or gains have not been significant.
There is, however, an old stock market adage: “The best time to buy is when there is blood in the streets”.