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Published on August 20, 2007

During the past several months, Thai exporters have been constantly crying to the Bank of Thailand (BOT) for help.

Some of them have blamed the central bank for their operational woes and for the fact that they must close down their plants and dismiss thousands of workers.

Sarakorn "Bobby" Gerjarusak, Goldman Sachs Asia's managing director of fixed income, currency and commodities, said the baht's rising value against the US dollar is only one of many factors affecting industrial competitiveness.

"The Bank of Thailand is not a super-institution. It's just a central bank," he said.

Central banks, Sarakorn said, had many more duties and obligations than just simply managing the country's currency. "Just look at the US Fed - it gets hammered every day - dealing with inflation, growth, unemployment and many other economic problems."

According to Sarakorn, what Thailand really needs is currency stability. "We should not be worrying about the weakening or strengthening of our currency," he said.

Thailand, the Hong Kong-based financier added, must decide where it wants its currency to be. "I think Malaysia has indicated that it is happy with the ringgit at 3.50 to the US dollar and its currency has been appreciating at a much slower rate than the baht."

Even if the BOT manages to keep the baht stable, he said exporters must do their part by driving for more efficiency and constantly lowering production costs if they want to continue successfully competing in this global supply-chain-driven environment. "If productivity is increased and the exporters are innovative they can more easily withstand currency appreciation," he said.

In Sarakorn's opinion, the drive for efficiency by Thai exporters may have been inadvertently decelerated by the onset of the Asian economic crisis in 1997. "Few people complained that costs were too high in 1997 when the baht was at 25."

As the baht's value decreased to as high as 52 to the US dollar, he said exporters enjoyed the currency advantage but may have dropped the ball by not concentrating on implementing innovative new production processes that increased higher-valued products while simultaneously decreasing production costs. "Why are Mercedes and Toyotas selling at virtually the same prices as a decade ago?" he said.

Sarakorn said that during the past decade, the euro had strengthened from about 0.83 to more than 1.38 to the dollar and the yen had fluctuated from 80 to 127, and yet the Mercedes and Toyota dealerships are still among the most profitable operations in the world today. "Some successful Thai industrialists have also been flexible and have learned to cope with these fast-changing environments," he said.

Perhaps more importantly, he added, everyone should remember that the BOT as a typical central bank could probably be expected to do only a limited amount by making the Thai currency stable. "The BOT should not be required to manage an exporter's currency risks."

Sarakorn said the Thai financial system was lagging behind many of its competitors in providing appropriate tools for exporters to hedge financial and currency risks. "I think Philippines exporters are much further ahead in using these financial instruments."

He suggested that a joint effort must be undertaken by exporters and manufacturers, the BOT and the Finance Ministry as regulators, and commercial banks as product sellers, that would allow for the development of appropriate hedging instruments that can be used by exporters to hedge currency risks. "Basically, they should come up with an appropriate set of financial instruments for exporters that will allow them to protect themselves against any severe strengthening of the baht."

The central bank, he said, could then bless certain hedging products and encourage exporters to use them. "Thai exporters are having the BOT carry the whole burden of keeping the baht at 33, when in fact everyone should be a part of the overall effort," he said.

Part four: Why competing by just moving up the value chain along may be a dead-end for Thai exporters? The first and second parts were published on August 13

and 14.