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Published on July 15, 2007

It looked as if that were the case until the government got a wake-up call from this week's abrupt shutdown of a major footwear factory employing over 5,000 workers near Bangkok.

The co-owners of Thai Silp Southeast Asia Import Export, who closed the factory without giving prior notice to employees, said they were forced out of business due to the unrelenting rise of the baht against the dollar in the past three to four months. The firm had accepted huge export orders for this period in advance.

In other words, Thai Silp and many other exporters are feeling the pinch as the baht has appreciated significantly since the start of this year, reaching a 10-year high at 33.18 to the dollar last week,  largely on the weakness of the US dollar, resulting in big losses for export-oriented enterprises.

The Labour Ministry has also reported that nearly 29,000 Thai enterprises in 18 export-oriented industries and other types of industries are behind schedule in paying into the social security system, suggesting that many are in financial distress largely because of the baht's strength.

Generally speaking, the greenback has tumbled throughout Asia, resulting in the sharp rise of several local currencies, including the baht. However, the Thai unit has been especially vulnerable because of speculative plays in both the currency and stock markets.

Since the start of this year, over US$4 billion (Bt133 billion) worth of hot foreign money has flowed into the Thai stock market amid the baht's rise. Over the past 10 days alone, this capital inflow reached the tune of $1 billion, taking the Stock Exchange of Thailand's index to a 10-year high of over 850.

In other words, there has been a significant rise in foreign investment in Thai stocks due to their relatively affordability, as well as widespread speculation geared at turning short-term profits on both the rising baht and local stocks.

As far as the overall economy is concerned, the government needs to quickly adjust its policies to properly manage the consequences of the strong baht under the current "managed float" exchange-rate policy since Thailand can't afford to return to a fixed-exchange rate as has been suggested by certain exporters.

Symptoms of imbalances are now obvious: too much of a focus on unsustainable exports, not enough overseas investment by Thais and their corporations, and an inadequate amount of imports etc.

In terms of economic drivers, the government also needs to re-start the "investment engine", which has been spluttering for too long due to the lack of enough large-scale public and private-sector investment projects in the past one to two years. Increased investments will lead to more imports.

As for the export machinery, it's necessary to remind all stakeholders that time is quickly running out for exporters unable to adapt to the new reality of the exchange rate. Those operating in sectors such as footwear or textiles, which are exchange-rate sensitive, have no choice but move up the value chain to focus on higher-priced products or else they will soon face the same fate as Thai Silp.

As for agricultural commodities, especially Thai rice, which are also vulnerable to a strong currency, the government needs to gear up its marketing machinery to differentiate Thai exports from those of lower-priced competitors such as Vietnam.

It should also consider making strategic investment to boost the competitiveness of Thai crops in key export markets such as investing in overseas distribution and logistical facilities.

As for listed firms being promoted to invest overseas, they should take the baht strengthening as a golden opportunity to invest in strategic assets that would boost their cross-border competitiveness and access to foreign markets

After all, Prime Minister Surayud and his Cabinet have no more time to spare as far as the consequences of the baht strength are concerned.

 Nophakhun Limsamarnphun

 nop1122@yahoo.com