Devalued currencies may be new threat to our exports -Somchai

Running out of other tricks, export-driven economies in the region have turned to devaluing their units as the means to stay competitive in export markets.

"We have spotted signs indicating that several countries have started competitive devaluations of currencies, which could hurt our exports," he said.

To prevent their economies from worsening as a result of the global economic crisis, several Asian governments have boosted public spending and cut interest rates dramatically, but these measures have limitations.

Now, they also turn to exchange-rate manipulations to boost economic growth via the cheaper pricing of export items, according to the official.

Defending the Bank of Thailand's exchange rate policy, Governor Tarisa Watanagase said the baht had moved in accordance with economic fundamentals and the value of other currencies in the region.

The Thai unit also has depreciated when compared with the currencies of the country's trading partners.

The Thai central bank has no need to weaken the baht to be in the same level of some regional currencies as countries with depreciating units have their own internal problems, which affect markets' and foreign investors' confidence, according to Tarisa.

"It is a good sign that the baht has been in line with other currencies. More importantly, it must not be volatile, otherwise the businesses would be affected," she said, adding that the central bank would continue to ensure that the Thai unit was stable.

However, Somchai warned that Thailand could lose its share of export markets if the baht remains strong relative to other currencies in the region.

"We do not ask the central bank to devalue the baht, but the relative value of our unit should be closer to those of other regional units," said Somchai.

 Some foreign governments have deliberately intervened in the foreign-exchange market to make their export products cheaper for international buyers, he noted, while agreeing that some regional currencies are under downward pressure due to weak economic fundamentals.

According to Ekniti Nitithanprapas, senior economist at the Fiscal Policy Office, the Thai unit as of Monday depreciated against the US dollar significantly less than the Singapore dollar, the Malaysian ringgit and the Indonesian rupiah.

Somchai said the Thai economy could have contracted by as much as 3.5 per cent in the fourth quarter of last year due to a slowdown of exports, consumption, private investment and public spending.

The economy may dip further in the first quarter of this year, he said, noting that the first quarter of last year saw a high growth of 6 per cent.

He also expressed worries about the possibility of twin deficits in the near future if the economy does not recover relatively quickly.

The country has already run fiscal deficits, as government plans to run a deficit of 3.5 per cent of GDP this year. Some critics estimated the deficit could be as high as 5 per cent.

A further decline in exports could result in the country having a current account deficit.