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Balanced approach on rising baht urged
Publication Date : 24-01-2013
As Thailand faces the challenge of how to tackle the baht's rapid appreciation, Brazil's tax on foreign capital inflows is an interesting example of how countries deal with a large capital influx that causes a sharp rise in their currencies, a World Bank official told The Nation yesterday.
Asked whether the Bank of Thailand might need to put in place capital controls to stem foreign inflows that have caused the baht to rise sharply of late, Andrew Burns, manager of the institution's Development Prospects Group, said the capital-inflow issue was sometimes a difficult one to manage.
"We have seen countries like Brazil, for example, struggling to maintain their currencies' stability in the face of volatile flows," he said on the sidelines of the "Prospects for the Global and Thai Economies amid Uncertainty" seminar, co-hosted by the World Bank and Thammasat University.
"The real challenge here is to find the right balance between efforts to limit the impact of volatility on the one hand, while preserving the benefits of capital inflows on the other," he added.
Burns said some of the steps taken in Brazil were interesting, with the idea of taxing some of the more volatile components of capital inflows being useful, while it was also fairly clear that introducing a broad capital control was not a beneficial strategy.
He said that while it was difficult to eliminate such volatility completely, the measures that have been used in Brazil and Turkey were interesting approaches that have met with some success.
Brazil in 2009 imposed a 2-per-cent tax on financial transactions for foreign inflows that go into fixed-income instruments. The Brazilian authorities have more recently increased the tax to 6 per cent in an effort to prevent a sharp appreciation of the currency, the real, against the US dollar.
Kirida Bhaopichitr, the World Bank's senior country economist, said the high volatility of the baht might only be a short-term phenomenon, and the central bank had tried to smooth out the recent rapid changes.
"Exporters should also adapt to the volatile environment," she suggested.
She believes the baht will rise along with other Asian currencies against the dollar, so Thailand's exports will not be adversely affected to any significant degree.
She expects the baht will likely move between 29.50 and 30 per dollar this year.
Kirida said the biggest threat to the Thai economy this year was the weakness of the global economy, which is projected to expand by 2.4 per cent, slightly up from 2.3 per cent last year.
There would be a negative impact on economic growth if the government were to disburse less than 60 billion baht (US$2 billion) on water-management projects, she said, adding that higher public spending would boost gross domestic product.
The World Bank forecasts that the Thai economy will expand 5 per cent this year, against estimated growth of 4.7 per cent last year.
Speaking at a separate event, Finance Minister Kittiratt Na-Ranong said the baht's appreciation meant there was a good opportunity for the import of products required for investment.
"There is no expectation of the Bank of Thailand intervening, as it would only be a short-term solution. The longer-term picture needs to be seen, as Thailand will undertake real investment. The long-term plan doesn't require us having a surplus all the time," he said.
Prime Minister Yingluck Shinawatra yesterday called an urgent meeting with Kittiratt, BOT Governor Prasarn Trairatvorakul, Arkhom Termpittayapaisith, secretary-general of the Office of the National Economic and Social Development Board, and representatives from the Fiscal Policy Office to ask them to monitor the baht's appreciation carefully.
The government will also seek a discussion with exporters soon to help them deal with the currency's volatility.
Banthoon Lamsam, chief executive officer and president of Kasikornbank, said the baht's strength was a challenging issue for the BOT and the government to find a balanced path that helps all parties.
While the unit's strength does not benefit exporters, it is of benefit to overseas investment by Thai companies, he said, adding that it was not easy for regulators to rein in its appreciation without affecting both of these key segments of the business sector.