Bangkok, 27th anniversary of the baht floating, Thailand’s reserves are strong, Kasikorn Research Center points out that there are still economic challenges that need to be solved, which could lead to the accumulation of economic imbalances.
The Kasikorn Research Center reported that July 2, 2024, is the 27th anniversary of the announcement of the baht floating, changing the exchange rate system from the basket of currencies that pegged the baht to the US dollar to the managed float exchange rate regime, allowing the baht to move in a direction that is more in line with the fundamentals of the Thai economy, compared to the exchange rate policy that was tied to a basket of currencies, which not only lacked flexibility but was also inconsistent with Thailand’s true economic fundamentals, and was the fuse that led to the currency being attacked at that time.
Looking back to the situation in 2024, although there are still outflows of investment funds in the Thai stock and bond markets, the volatility of the ba
ht in 2024 tends to slow down from a high of 9.0% in 2023 to 6.8% in the first half of 2024, which is much lower than the volatility in the first year after the baht floated, which was 34.5%. This reflects that under the Managed Float system, the Bank of Thailand (BOT) will play an important role in helping to monitor the movement and reduce the volatility of the baht. The challenges this year will be based on several uncertain factors, especially the trend of US interest rates, global economic risks, the direction of capital movement in financial markets, and the recovery trend of the Thai economy. In terms of the economic dimension, the current economic situation and measures of Thailand’s foreign stability are better than during the 1997 financial crisis. The 1997 crisis was caused by internal imbalances and currency pegging, but the current Thai economic situation is in the process of gradually recovering from the impact of COVID-19.
The Thai financial crisis in 1997 erupted from multiple imbalances, whe
re the private sector and financial institutions lacked risk awareness, spent and borrowed beyond their capacity, exposed them to the risk of Maturity and Currency Mismatch, had high foreign debt, and widely speculated in the real estate market. In addition, the overall economy had a chronic current account deficit for a long time during 1987-1997, but the exchange rate was pegged to a basket of currencies, which led to currency attacks and the Thai government having to use international reserves to maintain the stability of the baht. At that time, net international reserves fell to only 2.8 billion baht as of June 1997. Back to the current situation, the Thai economy is gradually recovering from the COVID-19 crisis. The clear difference compared to the 1997 crisis is that Thailand’s current international reserves are much stronger. As of June 21, 2024, the international reserves were approximately 253,000 US dollars, which could fully support short-term foreign debt, 3-month imports, and support the printing
of banknotes. As the foreign debt ratio fell to 38.6% of GDP by the end of 2023, and the government has taken measures to curb speculation in the property market, it reflects that lessons have been learned from the crisis to prevent a repeat of the same pattern in the Thai economic and financial system.
However, it must be admitted that the current challenges of the Thai economy are different from the past because there are both immediate issues, especially investors’ expectations of the situation and Thai economic policies, and issues arising from uncertain factors and structural issues that still need to be addressed, such as (1) high levels of debt in both the government and household sectors, (2) geopolitical issues and various forms of trade wars that have an impact on the global supply chain, (3) the competitiveness of small and medium-sized businesses, (4) preparing for Thailand’s entry into an aged society, which will worsen the problem of labor shortages and long-term public health burdens, and (5)
preparing to cope with climate change.
It can be seen that the imbalances during the past Tom Yum Kung crisis have been gradually resolved after the baht was floated, loans from the IMF, and economic recovery measures. Meanwhile, the challenges this time are more complex and different from those in 1997 because most of the issues are medium- to long-term issues, which may lead to the accumulation of economic imbalances in another form. Therefore, all sectors should work together to create a new balance for the Thai economy to alleviate the impact of structural constraints on Thailand’s economic potential in the future.
Source: Thai News Agency
