"There's no use in maintaining this measure because lower interest rates show better results in keeping the baht's appreciation at a proper level," said the honorary adviser to the Fiscal Policy Research Institute.

Controls on capital inflows are only 20-per-cent effective, he told a seminar on the effect of the baht's strength on industry.

Olarn said the baht could strengthen further to Bt34 per US dollar in the second half of this year on the back of greater foreign investment and foreign reserves.

The former Siam Com-mercial Bank president backed up his forecast by saying that in the second half capital inflows would be around US$2 billion (Bt69.2 billion), while the current-account surplus was expected to hit $5 billion.

He called on the government to launch measures to encourage operators to invest in other countries in order to prevent the baht from fluctuating.

At the same seminar, Nattapon Nattasomboon, deputy director-general of the Office of Industrial Economics, said the baht's strength had eroded the competitiveness of industrial exports with mainly local content, such as processed agro-products and furniture.

If the baht moves up 1 per cent, it will shave 0.1 percentage point off growth in gross domestic product and 0.09 percentage point off growth in industrial output.

The office has selected eight industries to benchmark against 16 countries including China, India, Vietnam, Singapore, Taiwan and Indonesia. Those industries are steel, oil, jewellery, electronics, animal foods, plastics, textiles and furniture.

The results show Thailand ranked 12th in value-added products and production, followed by Turkey, China, Vietnam and Sri Lanka.

Nattapon stressed that manufacturers had to focus on boosting their productivity and doing more research and product development because the Kingdom could no longer compete on cheap labour.

Chalida Ekvitthayavechnukul

The Nation