absolutelyBangkok archive · Business & Economics
Originally published Oct. 7, 2010
The Oct jinx:
True to tradition, the last and the first month of government fiscal year have never been quiet and peaceful when key government officials, police and military generals reached their mandatory retirement and had to be replaced. This year, things have been more unstable than usual due to the discontent of those left out in the cold while many of their “dark horse” rivals were nominated to powerful positions by their respective political mentors, now in power.
Although Thaksin has been exceptionally quiet during 9/10, his Puea Thai Party and the red shirts have regrouped and restarted their strategic multi-pronged attacks to dislodge the Abhisit government. While some of their factions seemed to subscribe to the various new peace and reconciliation proposals, others continued their daily bombings. The initially quite harmless explosives have turned increasingly more violent.
Full security alert was called to prepare for the red and the yellow shirts’ anniversary celebrations from 6/10-14/10. On 1/10, the CRES decided to lift the emergency decree in the remaining three northeast provinces but to extend it for another three months in Bangkok and the three surrounding provinces. Meanwhile, the new police chief has been successful in catching about a dozen of the bombing gangs, a few of whom accidentally triggered the bombs and blew themselves up in the process.
By Vongthip Chumpani*
Musical chairs, once more?
To mark the 4th anniversary of the Sept. 19 coup, thousands of red shirts converged to protest peacefully at Ratchaprasong. Both the red shirts and the Puea Thai Party have been quick to bring pressure to bear on the judges of the constitutional court who were expected to rule on the case against the Democrat Party (for using their THB 29 million election fund to produce the wrong size of election posters!) by mid 11/10. The anticipated verdict against the Democrat Party has triggered another round of political jockeying among the government coalition and the opposition parties.
Party bosses started their rounds of horse trading to secure their political future in case a snap election was called or the Democrat Party was dissolved by the court. A number of (frightful) scenarios were played out by politicians, political pundits (including the usual fortune tellers) and the media. Many PMs in-waiting have also emerged to include the current minister of finance, former army chief, one current DPM (due to resign and run in a by-election), another current DPM (self-appointed negotiator of national reconciliation), and a few of elected, non-elected and re-elected “nominee leaders” from Puea Thai Party.
Meanwhile, exasperated voters were left wondering once again about their own rights and roles in the choice of the government! Most were pinning their hopes on the court to maintain the current political status quo (minus the rampant corruption and violence if possible). They believed the country could no longer afford to go back to square one again, politically and economically.
Cool head. Brave heart.
In 9/10 PM Abhisit followed his daily work schedules without missing a beat. On 9/10 he went to Shanghai to vie for Thailand as 2020 World Expo site. From 22-26/9/10 he was in New York to attend the 65th U.N. General Assembly and brief world leaders about Thailand’s current economic, political and social situation. There he met with Cambodia’s PM Hun Sen to discuss how the two neighboring countries could move forward to revive bilateral ties and avoid violence at the border.
He religiously held his weekly TV report to the people followed by interviews (by news anchors), public debates or open discussions with various interest groups, to inform as well as to walk the public through issues of the week that were of national importance and/or controversial e.g. accusations against human rights, double standards, peace talk as opposed to reconciliation plan, unfair government appointments (permanent secretary of ministry of interior) and promotions (police general implicated in the Saudi case), corruption scandals, the trial of an international arms dealer (wanted by both the U.S. and the Russian governments), the continued protest against the Map Ta Phut case, the 3G saga that has infuriated all concerned, the bombing and killing that seemed to go on and on in the Deep South.
He was also able to give the country some good news e.g. 8% salary increase for government officials and minimum wage increase for workers in 4/10. A new TV channel has been set up especially for teachers, with a weekly “PM meets the teachers” program to address educational problems that have been plaguing the country for so long. White radio and other social media were also planned to provide platforms for the country’s youths in the various regions to exchange their views, culture and art. Special efforts were promised to give better health care and education to preschool kids (three to five years), handicapped and school drop-outs.
Bull run?
From 8/09 to 8/10, the SET index had gained 74.6% and in 9/10 alone it moved up another 6.8% to end the month at 975! Thanks to foreign capital inflow (accounting for an average of 30% of daily transactions), total capital inflow this year has already reached USD 3.6 billion, of which some USD 600 million went into the stock market. With the current P/E ratio of 13 times, lower than the 15 times average of the last 10 years, there was still no sign of over trading in the SET.
Market capitalization stood at THB 7.4 trillion or about 80% of GDP, considered low by any international standard. Most analysts were of the opinion that the SET could grow further in depth and width. While foreign investors continued their shopping spree, local investors moved agilely in and out of the market doing their usual hit-and-run to make sure they were not caught in any unexpected and abrupt pull-out of foreign “hot money,” here for the triple-whamming profits from capital, foreign exchange and even interest rate gains.
Strong Baht
Throughout 9/10 the THB broke one recent record after another to end the month at THB 30.20/USD. In-bound tour operators and SME exporters were lamenting their disappearing profit margins, loss of orders and inaccessibility to forex hedging products. The governor of the Bank of Thailand, who retired on 30/9/10, tried hard to explain to politicians that the Baht’s strength has been very much in line with other regional currencies while the USD continued its plunge.
So far, intervention has been done only in order to keep the Baht’s appreciation smooth, gradual and stable. In line with new directions being taken by The Bank of Japan and other central banks in emerging markets countries, measures to slow down (or even to curb?) inflows of foreign funds and to encourage fund outflows, were considered and taken quietly to deter detrimentally speculative waves of fund flows that would disrupt domestic economy.
All eyes were on the new central bank governor and the MPC board when they meet on 20/10 to decide whether or not to maintain the current repo rate of 1.75%, notwithstanding the creeping inflation rate of 3%. On 4/10 the THB hit a 13 year high of THB 30.14/USD and broke the THB 30/USD psychological barrier on 6/10/10. Many investors believed THB 29/USD could be just around the corner!
High reserves
The fundamental reason for Baht’s strength came partly from the fact that Thailand had worked hard for almost a decade to restore the country’s international reserve. From just USD 33 billion back in 2000, Thailand’s foreign reserve has crept up to USD 159 billion today, rising USD4.7 billion during 1-6/10 but shooting up by USD 3.7 billion in 7/10 and by another USD 4.8 billion in 8/10. Based on the country’s USD 300 billion GDP in 09, the reserve to GDP ratio has climbed to 53% while foreign debts (36% short term) has declined to 25% and debt servicing ratio at 7%. In spite of the global financial melt-down in 2008 and its aftermath economic slump, the Thai banking sector has remained stable and sound.
Thanks to the Bank of Thailand, Thai banks have remained prudent, conservative and well capitalized. They would, therefore, have no difficulty to comply with the stringent reserve and liquidity requirements as called for in the new rules and regulations of Basel III. With loan to deposit ratio averaging at around 85%, Thai banks have ample liquidity at their disposal to fund the large infrastructure investment projects now in the government’s pipeline.
Anti-corruption campaign
In 9/10, in spite of public skepticism, the private sector went ahead with their own schemes to contain corruption, calling for more disclosure and transparency in government procurement transactions. They planned to rate and rank government institutions and state enterprises, based on information, tips off, news and rumors on corruption. Social sanction would be imposed, using modern media like Facebook, emails and video clips etc.
According to a survey, sent out to some 4,000 companies, 47% of the 700 respondents admitted that corruption affect the economy, 33% considered corruption to be at disastrous level and 49% said it ate up to 20% into their revenues. Alas, only 14% agreed to join the efforts to stop corruption. Meanwhile, PM Abhisit has made an appeal for a comprehensive anti-graft system to plug major loopholes in government procurement rules and regulations e.g. fixing the mean prices and hiring “consultants” for mega projects that led to most of the price inflation controversies.
Many believed corruption would end only when government officials’ low salaries could be jacked up to be more in line with the immense power and responsibility of civil servants in the top echelons. In today’s world of instant global communication, citizens and officials alike have found it most difficult to toe the line, practice self restraint and curb their own greed for money and lust for power!
* Vongthip Chumpani is an advisor to and former president of Bangkok Bank and a former advisor to the Senate Foreign Relations Committee. All views and opinions expressed herein are entirely from her own personal observations.
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