Korbsak Sabhavasu's Blog

The problem is the U.S. dollar, not the Thai baht. The U.S. dollar is at its lowest level in 13 years. When the U.S. dollar depreciates, currencies in other countries, including Thailand, become stronger. The currency appreciation in any given country is based on that country’s economy, and how it deals with the problem.

To find the right solution, we must start with the source of the problem: the U.S. dollar. First, we need to determine whether the dollar will continue to drop, and if so, for how long.

A lot of you may think that the United States won’t fail (but this time it might) and that the U.S. economy will recover soon. Some of you may have a different point of view, and think that the dollar will be worth nothing in the future.

Let’s take a look back 25 years ago, at a luxury hotel in New York called ‘The Plaza,’ when five finance ministers – from the United States, the United Kingdom, France, Japan and West Germany – met for a secret meeting.

The result: an agreement called ‘The Plaza Accord’ to determine measures to depreciate the dollar. The agreement worked, and in two years, the U.S. dollar dropped by 54 percent.

The reason that the dollar problem had to be solved was because the U.S. economy had problems: a massive budget deficit, a dollar that was too strong and a decline in export revenue … Do these problems sound familiar?

Of course they do. Even though the source of the problem today is different than it was 25 years ago, the results are no different. The U.S. budget is in deficit again, and this time, it’s worse. The country needs to borrow a lot of money (more like print it) to solve its financial crisis. There’s no need to arrange a secret meeting this time, because most of the other Western Hemisphere countries are affected in the same way.

From here, it apears it will take many years for the U.S. dollar to become stable or stronger, but it’s hard to predict. We can probably say that appreciation in the Thai Baht will stay like this for quite some time.

Do not ask the government how to solve the Baht problem. And the Government itself should not say how it will solve the problem, because it can’t be solved.

The government must tell the people that every sector of society, including the government, must adapt and use this crisis as an opportunity for change. We must wisely change our position on the current world economic stage.The government has to help society adjust and keep up in any way possible.

You first have to agree that there will be major changes this time. There must be changes in the country’s revenue, so that Thailand and the Thai people rely more on themselves, and not on the international market. This is an extremely narrow world, and there are a lot of imbalances. The world’s economic imbalances will not end easily. Even if you can solve the problem today, it will come back tomorrow.

Change, adaptation … We need to do many things simultaneously. But whether there will be a lot of change or a little, things will take time. Time is the most important thing.

Today, the Baht is strengthening too fast. The business sector hasn’t been able to adjust in time, which has resulted in the loss of income, affected unemployment numbers and purchasing power, and had a broad economic impact. Today, the business sector needs time to adjust.

The first thing is the government (Bank of Thailand) has to take measures to slow down the currency appreciation. There are many ways to do this, and continually intervene in the Thai Baht, such as printing Baht to buy U.S. dollars, then taking back the Baht by issuing bonds. This approach will cost a lot, and the Bank of Thailand will lose money, but they have no choice.

There need to be measures to loosen restrictions and let cash flow easier. If we freely let capital flows into the country, then we have to let capital flows out easily as well. But if the BOT doesn’t want to let capital flows into the country for free, they might take an example from Brazil, which increased the capital tax into the country from 2% to 4%, and proved that it was only psychological. The Brazilian Real still continues to appreciate. The BOT may need to keep this idea to themselves for now.

Everyone is waiting to see if interest rates will be increased or not. Gurus are debating the issue, but the answer lies with the majority of the Finance Committee. I don’t know the numbers, so I don’t dare comment. But if the BOT needs to increase interest rates again, then they should do it. Inflation is something that needs to be handled carefully. I was just assigned by the Prime Minister to solve cost of living problems, relying heavily on the BOT’s action on inflation.

Right now, the BOT needs to play a greater role. In the past the BOT could provide soft loans to support certain sectors of the economy, such as agriculture. Now they can’t. We might have to rethink our actions. If there needs to be a change in the law, we have to do it.

The main focus of our policy must be to make the Baht stable so the currency does not appreciate too fast, and we buy some time for businesses to adjust.

This is how the business sector should proceed: by improving the tools and machinery used in the production process with the latest technology. Take the opportunity during Baht appreciation to purchase machinery from abroad. Advanced manufacturing processes will reduce production costs and increase competitiveness. Do not use too much money to help with business so you can learn to live with the Baht appreciation.

The Department of Revenue, Ministry of Finance needs to catch up. Cancel the measures to reduce tariffs on imported machinery goods. They should quickly announce that there will be no tariffs for two years. It should be announced immediately – not tomorrow or the day after tomorrow, but now. Businesses must be allowed to more quickly deduct investment in accounting as expenses in order to attract business sectors.

Businesses lack capital to improve production. Government financial institutions are obliged to help. The BOT’s soft loan program will be a lot of help (but we must quickly fix the law).

Fuel prices and the cost of everything must reflect the facts. If the Baht is strong, then oil prices must go down if international oil prices don’t move in the opposite direction.

Right now, I’m commenting as if i’m not in the government. These are my own personal thoughts, because as a secretary of the Prime Minister, my duties are limited within the execution framework. I play no part in policy making.

I’m complaining out loud today, talking a bit off-track.