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Published on March 20, 2008

At the same time, the Bank of Thailand said yesterday's reduction in the US Federal Reserve's benchmark interest rate by 75 basis points to 2.25 per cent had not triggered a flow of funds into the country.

"The difference between the Thai and the US rates is not the only factor driving capital flows," Bloomberg reported director Amara Sriphayak as saying.

Asian stock markets jumped within a range of 1-2 per cent yesterday, driven by the Fed's 75-basis-point rate cut. Only the Thai and Indonesian bourses bucked the trend.

"Fitch Ratings does not believe Asia has decoupled from the US economy, and the region's 2008 growth prospects are weaker," James McCormack, managing director for the Asia-Pacific at Fitch Ratings, said yesterday at the "Thailand Conference" seminar hosted by Kasikorn Securities.

Fitch Ratings has placed Singapore, Hong Kong and Vietnam at the top list of the Asian markets most vulnerable to the US turmoil. These markets depend on a large share of exports destined to the US, which accelerates inflation, large net foreign-equity inflows and large exports to China of parts and components that are eventually destined for the US or the EU.

Thailand is almost at the bottom of the vulnerability rankings, in ninth place.

"Thailand is reasonably well positioned," said McCormack.

Vietnam's exports to the US are above 10 per cent of gross domestic product (GDP), while Thailand's exports to the US are about 10 per cent of GDP.

"The number is not small for Thailand," said McCormack.

As of last April, more than 40 per cent of Thailand's exports to China and Hong Kong were parts and components that would be re-exported to final consumers in the US and the EU.

This number is quite large, although parts and components as a share of exports to China by the Philippines, Taiwan and South Korea are far greater.

McCormack said lower foreign debts and government debt to GDP had contributed to Thailand's relatively strong fiscal position.

However, he said weak global economic growth could undermine government initiatives to support growth.

Risks in Thailand are political uncertainty, weak consumption and investment. McCormack warned that a short-lived coalition government would not be good for domestic or international investor confidence or the establishment of economic policy after two years of policies being kept on hold.

Fitch Ratings has forecast economic growth of 4.7 per cent this year for Thailand, against last year's 4.8 per cent.

Wichit Chaitrong,

Anoma Srisukkasem

The Nation