Baht bucks trends
Re: "Baht poised to weaken further", (Business, May 14) and "Foreigners get keen on Thai markets", (Business, May 13).
Despite a series of underwhelming economic indicators and a deteriorating credit outlook, the Thai baht has remained surprisingly resilient.
Over the past 12 months, the currency has appreciated even as Moody's downgraded Thailand's credit outlook and both the IMF and World Bank forecast the country's annual growth at below 2% -- a notable decline.
According to the Bank for International Settlements and the Bank of Thailand, the real effective exchange rate of the baht has appreciated by roughly 25% over the past two decades.
Thailand has consistently run current account surpluses while maintaining deficits in the capital and financial accounts, resulting in a substantial build-up of foreign exchange reserves from $50 billion (1.7 trillion baht) in 2005 to more than $250 billion today.
However, a deeper look into the balance of payments reveals structural vulnerabilities. In the past decade, Thailand has experienced cumulative net foreign direct investment (FDI) outflows of $48 billion, which stands in stark contrast to the previous decade (2005-2015) during which it posted net inflows of $33 billion.
Portfolio investment has also seen consistent outflows, with rising dividend repatriation by foreign investors -- perhaps reflecting a shift in perception of Thai assets as more defensive holdings within a broader diversification strategy.
This long-term trend should raise concerns among policymakers. Thailand needs to refocus its efforts on attracting long-term FDI and equity capital that fosters innovation, infrastructure, and human capital development. To this end, Thailand must provide clearer incentives and cut red tape for foreign investors.
Equally important is to develop deeper capital markets in Thailand, which would provide local firms with a more diverse array of equity and debt instruments, helping reduce the corporate sector's overreliance on traditional bank financing.
