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Thailand's foreign debt rises to record high

Publication Date : 10-05-2012


Thailand's foreign debt rose to a record high of US$119 billion or 3.6 trillion baht in March, but the Bank of Thailand insists the country's external exposure is balanced by asset holdings.

The central bank's data revealed that the outstanding foreign-currency debt of all sectors, except its own, showed an increase from the previous month. It attributed the increase mainly to burgeoning Thai investment overseas as well as international trade

Songtham Pinto, director of the macroeconomics office, said yesterday that there is no reason to worry despite the increase. Most of the external debt is backed by assets, such as trade receivables or foreign-exchange hedging contracts, he said.

"Thanks to an increase in overseas investment, demand for currency hedging is on the rise. Expecting US dollar-denominated income, these investors sold dollars through forward contracts. As these contracts are offered by commercial banks, the banks need to plug associated risks by borrowing dollar-denominated loans. This increased the external debt.

"This is not an issue, as the forex risks are taken care of. There will be no risk, even the baht may weaken against dollar," he said.

Deposit-taking financial institutions produced the sharpest increase of $2.8 billion from the previous month to $26.5 billion, due to short-term borrowings to cover hedging demand from Thai businesses.

In March, foreign investors dumped short-term central bank bonds, pulling down the central bank's outstanding foreign currency-denominated debt by $300 million to $249 billion.

Demand for long-term government bonds, however, boosted the government's debt by $100 million to $12.2 billion.

Thailand, like other Asian nations, benefited from investor demand for long-term bonds, on anticipation that Asia's growth would be maintained on the back of the US economic recovery.

Foreign currency-denominated debt of other sectors climbed $1.8 billion to $72 billion, of which the non-depository corporations' portion went up by $200 million to $9 billion, due to loan demand.

The portion of non-financial businesses, individuals and non-profit organisations added $2.8 billion to $63 billion, largely due to the growing import account. In March, imports soared 21.5 per cent from the same month last year.


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