Thailand is slipping into stagflation

[Mid]

Experts warn of stagflation
Published on November 17, 2007

Thailand is slipping into stagflation - a stubborn mix of economic sluggishness and feverish inflation - as the international and domestic environments turn increasingly hostile, economists warned yesterday.

Chief among the negative factors would be low confidence prevailing after the December 23 election and a global fall-out of the US sub-prime crisis.

The US Federal Reserve Board injected US$47.25 billion (Bt1.6 trillion) into the US financial system on Thursday to relieve the credit crunch caused by the sub-prime mortgage debacle. The Fed, in August, pumped large amounts of cash into the financial system to help ease financial institutions over any credit humps, which have also hit Thai and other non-US financial institutions. Britain's Barclays Bank on Thursday became the latest victim. It was pushed into writing down ฃ1.3 billion (Bt92 billion) on its books between July and October. In October alone, the bank kissed off ฃ800 million. Its investment arm Barclays Capital still has more than ฃ5 billion worth of exposure to investments in packages of debts backed in part by US sub-prime mortgage loans.

At a seminar on "Thais depend on Thais" yesterday, former finance minister Virabongsa Ramankura said the economic slowdown in the US would send ripples to Europe and this would hurt Thailand's exports.

He said that in addition to high oil prices, the new Constitution also poses a threat to the economy. It could lead to unstable governments, frequent political changes and unstable economic policies. Civil servants and businessmen have been subjected to state interrogation, and they have become inactive. Due to the legal amendments, the more stringent legal system indicates a lack of trust in anybody and this could hinder economic recovery.

He also wondered if Thailand's election would be seen as just and fair, as that would be the key to giving credibility to the new government. In addition, continuing doubts about current legal, judicial and accusatory practices, and whether the Army would maintain power, would make the economy more fragile.

"It's possible that the state of anxiety will last for four to five years," he told the audience.

The baht would remain strong until the middle of next year when stagflation starts to set in.

Supavud Saicheua, managing director of Phatra Securities, said that to avoid stagflation, the new government must promote state and private investment, as investment accounts for 40 per cent of gross domestic product. This would create jobs and stimulate spending. But drawing private investment requires clear policies.

"All those populist policies could be implemented only when the economic growth rate is at least 6 per cent. On top of 2-per-cent inflation, GDP must expand over 8 per cent to balance the fiscal burden," he said.

Kittiratt Na Ranong of Sasin Graduate School said it would take at least five years to revive the economy with the free market mechanism. Relaxed monetary policies are recommended and the Bank of Thailand should adopt the GDP targeting approach, not the inflation approach.

Anusorn Tammajai of Rangsit University said he was also in favour of maintaining the capital reserve requirement under these volatile market conditions.

Exports are expected to expand at a slower pace next year due to the US economic meltdown, which is expected to dampen demand for Thai exports in the US and other key markets, he said.

US Treasury Secretary Henry Paulson said on Thursday in Cape Town, ahead of the G-20 meeting, that the US economy is still strong despite the sub-prime crisis, which could take months to get back to normal. He was also convinced that the strong US economy would pull the greenback back up.

Reflecting its concern on the impact, the Fed took its most aggressive action beginning in September with a cut in the federal funds rate, the first in more than four years. The Fed followed up with another reduction late last month. At that time, Fed chairman Ben Bernanke and his colleagues signalled that those two rate cuts might be sufficient to get the economy safely through the credit crisis and severe housing slump.

Stephen Docherty, head of global equities at Aberdeen Asset Management, also said the pledge by Citigroup, Bank of America and JP Morgan Chase to set up a $75-billion rescue fund was a sign of more casualties to come.
Citing research, Docherty believes that the first and second quarters of 2008 are "when the pain begins" as people start to refinance their adjustable rate mortgages (ARM). March next year may see the volume of ARM resets hitting $110 billion.

The Nation, Agencies
nationmultimedia.com


any TD members of the rose coloured glasses brigade ??

[Norton]

any TD members of the glasses brigade ??

For those on non baht incomes, the demise of the Thai economy and the subsequent devaluation of the baht paints a very rose coloured picture.

[Mid]

provided your sheltered from the accompanying social consequences .........

no man is an Island

[Norton]

^Very sheltered. Where I live a total meltdown of the economy would go essentially unnoticed.

[Thormaturge]

the new Constitution also poses a threat to the economy. It could lead to unstable governments, frequent political changes and unstable economic policies.

No it won't LEAD to these things...we've already got them.

[Norton]

No it won't LEAD to these things...we've already got them.

Exactly! For the last 10 years, Thailand's economy has been running on fumes. It is a mystery the economy hasn't gone in the dumper already. Yes the slowing US economy does effect Thailand but xenophobic economic practices, uncompetitive Thai companies, corruption, Thaksinomics and coups eventually reach a day of reckoning.

No rose coloured glasses here.

[Thormaturge]

I just have this unnerving feeling that the forthcoming election is going to be yet another farce leading to a collapse of overseas confidence in anything this counry does. I won't be at all surprised to see ThB 90 to the pound Sterling within a couple of years.

[Mid]

that's what continues to intrigue me , how come there is an economy at all ?

big domestic announcement recently re a $1bill petro investment by the locals .......

in the international version is the request to China to fund it ...........

[Thormaturge]

Keep it quiet but I believe the finance minister is getting a useful Christmas present.

[Mid]

same deal with the Japanese financing the BTS extension ..........

domestic media full of it ,

then silent when the Japanese rejected their generous offer for them to finance it ,

again , currently looking to China for the freight ,

think he'll need a bigger present .....................

[Norton]

I just have this unnerving feeling that the forthcoming election is going to be yet another farce

Quick, go set up a fortune telling booth somewhere. You will become a legend.

[Sir Burr]

Surprised that they state inflation at only 2%. I thought it was closer to 6% per annum.

[DrAndy]

I won't be at all surprised to see ThB 90 to the pound Sterling within a couple of years.

I won't mind at all

The baht would remain strong until the middle of next year when stagflation starts to set in.

I await that day, the Baht is well over-priced now

[watterinja]

The Thai manufacturing capacity essentially hollowed out after the 1997 Asian Crisis. The company bosses creamed off the profits without re-investing in new technology. They are now stuck with old product lines, that are being phased out by their export customers. They have not been able to grow internal (homegrown) technological capability for a number of reasons - poor management style & lack of local 'brain-power'.

The next few years will see their Japanese masters tightening the control & squeezing Thai industry into the position of fabrication slaves. If they don't submit, their lifeline will be cut.

A case well known to myself:
Western companies investigated for a period of around 2 years, & some began limited investments, & order call-offs. Of late, the Japanese have begun clamping down - as it seems. The Thai-Chinese company owners have capitulated their independence, & are now de-facto slaves to their Japanese masters - either accept, or product call-off is cancelled.

Elsewhere - GM:
Technology transfer into Thailand has not worked, as there were insufficient local expertise to receive & work with it. It ended up being a master-slave situation purely to get product out the door. Many foreign advisers are leaving & not renewing their contracts.

I believe that Thailand has put itself into a very serious position, & all bit the Japanese are beginning to look elsewhere. Ford was reputed to want to build a new facility in Thailand, but their #1 concern was how to find 100k skilled personnel. Big problem!!!

Thai manufacturing is in serious trouble, & without opening its arms to foreign expertise & open, fair investment, its future will become increasingly bleak. Without an engine to fuel exports into the long term, the economy will gradually implode & inflation will run rampant.

The simple maxim in this case is:

Work is a four letter swearword
Hard Work is too much to even contemplate.

[Sir Burr]

I thought Thailand's biggest export was agricultural products?
Also, with the strong Baht, now would be a good time to be upgrading manufacturing machinery from the US, Japan and the EU.

I don't think the outlook is as bleak as you make out.

[Thormaturge]

The election fiasco we have witnessed in recent years, and which is still unfolding, displays to the entire world how everything is done here.

If it doesn't work then try the first thing that comes to mind. If that doesn't work then repeat ad infinitum until you finally find something that does work.

Then screw the end result up anyway just for a laugh.

You never see Jerry Springer on Thai TV because nobody finds his stuff at all unusual..

[watterinja]

^^ Agricultural products don't bring the returns per capita that industrial items will.

I've a meeting planned with Thailand's 'Mr. Export' soon & will be very interested to hear his real views. He's certainly saved Thailand's bacon over the past few years.

Personally, I'm pessimistic about Thailand's ability to support the Detroit of Asia concept they touted. I believe this spills over to other parts of the industry.

[watterinja]

The election fiasco we have witnessed in recent years, and which is still unfolding, displays to the entire world how everything is done here.

If it doesn't work then try the first thing that comes to mind. If that doesn't work then repeat ad infinitum until you finally find something that does work.

Then screw the end result up anyway just for a laugh.

Agreed.

Unless the typical master-slave Thai management style changes into a professional company structure, there is no point to continued industrial growth.

[Thormaturge]

Thailand's bacon over the past few years.

I've seen Thai bacon and it isn't worth saving.

[Thormaturge]

REAL bacon



This is pure torture.

[chinthee]

REAL bacon



This is pure torture.

Please stop, you're making me cry.

[Thormaturge]

Suffer.

[chinthee]

Back at ya

[Thormaturge]

Weep

[watterinja]