The power of the Thai baht
Six years ago my son did a paper for high school on the power of the US$. If you were to read this paper now, you would be amazed at how much has come of it. Therefore now a philosophical article about "the power of the Thai baht", which will probably lead to a lot of discussion.
Many can still remember that more than 4 years ago the exchange rate was 50 baht for 1 euro. In those 4 years, the Thai baht has risen to even a moment of 37,50 baht for 1 euro. Various reasons for this are now known, but where is the Thai baht going now?
First we outline the current problems in Thailand:
- political instability;
- withdrawal of funds from Thailand by investors;
- the huge stocks of rice bought up by the government;
- the huge sums invested in this rice system, which must now be reduced by issuing bonds (long-term loan);
- taking out a 2,2 trillion Thai baht loan to renew and improve infrastructure;
- taking out a 350 billion baht loan for waterworks;
- dependence on the price of rice on the world market;
- the limited differentiation of the products rice, rubber, fruit and fish/shrimp;
- the decline of the tourist industry, among other things due to the no longer allowing Zero$ travel from China;
- the dependence on the big brothers China and Japan in particular;
- the increased mandatory salary costs of at least 300 baht per day;
- deep-rooted corruption.
With each point you can imagine what consequences it can have on the economic developments of Thailand. The positive is the optimism of the TAT (Tourism Authority of Thailand) and government bodies and their far too high expectations every time. In addition, we naturally do not dare to question the reliability of the published figures.
Last week I spoke with my friend Pat, who has had a number of ventures in Thailand but clearly now sees the problems ahead for Thailand. He accuses the farmers of only believing in rice, because their parents did too, and about the insane traffic behavior of Thais and the many unnecessary accidents. However, we must not abandon our Western thinking to Asian thinking. They may still be right in 50 years.
In Europe everything is starting to settle down again and there is economic growth again (we have fallen back quite a bit at first and then growth will follow naturally). Germany, in particular, has once again found the right path with its political stability, no minimum wages and differentiation of companies. The rest of Europe will follow, even Greece. In short: The euro is becoming more stable and once again a good currency to invest the money in.
In the USA people have trillions of debt (at the time of writing 17.852 billion US$). You will understand that there are some ways to pay off this debt and I expect the money printing presses to speed up even further, causing the US$ to fall further against the Euro. I do not rule out 2 US$ for a euro in 10 years (see first sentence of this article). Europe indirectly pays the US national debt.
The richest party in the world is China. In wealth, in production, in exports and economic growth. Their wealth in and of US$ is so huge that they can bring down the US economically in a matter of hours, but they also realize that their own economy will completely collapse as a result, so they buy up many companies in Africa and Europe.
What does this mean for the Thai baht?
- If the rice market is due to overproduction and therefore a falling price, Thailand has a huge problem.
- If the tourism industry declines, it will negatively affect revenue for Thai businesses and employment.
I myself believe that Thai protectionism, low education and dependence on other countries will eventually affect Thailand and expect a further decline in the Thai baht in the coming months. Basic reasons: Stronger US$/Euro ratio. Stronger Euro/Thai baht. Dependence on investors from abroad such as Japan and Europe. Also dependence on unstable factors such as the travel world and politics.
We will certainly see the 50 baht for a Euro again in the short term (3 years) because an economy and differentiation of products takes about 10 years and in that time the country is very sensitive to foreign aid, aid and investors.
I do not guarantee the decline, but believe that the Thai economy is very sensitive to various factors, but believe that something needs to change structurally otherwise they will soon be number 10 on the list of countries with a too high national debt percentage.
Life in Thailand will eventually become cheaper for expats!
Submitted by Ruud Hop
Well said, time will tell, but the euro is still a long way off and the question is whether it will last. Now things seem to be going a bit better, let's look a few years further,
It would be nice if the baht goes to 50.
He is now almost at 44, so things are moving in the right direction.
Gr Dick
A side note to that story is that the peak of 50 baht per euro was very short.
That was not so much due to the Baht but more to the Euro, which was very strong at that time. For example, the currency pair EUR/NOK also traded above 10 at that time and the EUR/USD around 1.60.
If the EUR/USD ratios remain stable then I'm not so sure if the time of EUR/THB 50 just comes back, I'd rather see it stabilizing somewhere between 44 and 48.
EUR/USD to 2, you would normally think that is the policy. But since most commodities are settled in USD, the demand for USD remains strong, especially when growth returns in the various parts of the world. Also, the FED is likely to scale back its QE policy next year, which would also strengthen the USD somewhat.
Complex matter this. The Baht will weaken slightly compared to the Euro, but will the 50 come back?
Dear BA,
First of all, thank you for your constructive criticism.
I want to respond to your comment that the period when the Thai Baht was above 50 was not that short in my opinion. For this the following link:
http://www.xe.com/currencycharts/?from=EUR&to=THB&view=10Y
From this you can see that the baht was above 2004 in 2005 and 50 and again in 2008 and the end of 2009, so you can't call it a short period in my opinion.
Because China mainly wants to do "barter" trade with Thailand (goods against goods) I expect that this will have a negative impact on Thailand's Capital Income Balance.
I fear most the collapse of the rice price on the world market.
Critical comments are always welcome, they also make me sharper.
Thanks for the good analysis.
You forget one factor: the great appeal of Thailand. Many people want to go on holiday because it is fun, safe and relatively cheap. If they strive for political and religious stability, then I think Thailand still has a bright future.
Good article,
You forget that apart from what is happening in Asia and Thailand, there is also a lot going on here in Europe. The Euro has shot down after we got into trouble with countries like Greece. We still have a big bill to choose from. 'Debts in Europe rise 100 million euros – per HOUR'.
But I hope you are right, the price is now the highest in 2 years. 43.55 bath
Many thanks to Ruud Hop for the excellent article. I think many of the commenters are right in their point. Don't forget that Thailand is one of the most politically troubled countries in Southeast Asia. Just look at the history of what has happened here in the last 50 years. If you add to that the tourist unfriendly conditions in Phuket and sometimes also in Pattaya, Thailand is busy killing itself. If we then look at Cambodia and especially VBietnam, I assume that everyone is sunbathing on the beaches of Vietnam instead of in Hua-Hin or Krabbi?.
Many Dutch people of our generation know Sitges in Spain and the exuberant night and beach life there. Until every tourist realized that they were being exploited in the strangest and most brutal ways. When the Spanish government finally responded, it was already too late for Sitges. And what is Sitges today?. Who is still going to go? It would be a pity if this also happened to Thailand. great martin.
I am not an economist, but different developments are going on at the same time and have a different influence on the exchange rate of the baht.
1. Thailand's tourist image is still good to excellent - despite the political instability, which only occasionally degenerates into fights and unrest. The growth in tourism is not due to European countries, but to countries such as China, Russia and Malaysia. I expect tourism will continue to grow with the arrival of the AEC, also from neighboring countries. Perhaps a decline from Europe that is not due to Thailand's image but to the economic situation in Europe. As the economy recovers in Europe, the flow of tourists from Europe will also increase again. People will discover new places if they avoid the islands of Pranburi and Chumporn and perhaps Phuket and Pattaya.
2. The baby-boomer generation (worldwide) will retire in the next 10 years. Thailand is number 9 worldwide as the favorite country to settle in after retirement. Expat-retirement environments are already emerging here, not only in Hua-Hin and Cha-am but also in certain villages in the north and northeast. That will certainly continue. You can do more here with your pension, even if the cost of living is rising.
3. The price of rice on the world market will also be under strong pressure in the coming years. Myanmar has announced that it will grow and export much more rice at lower prices. Their historical disadvantage is converted into a future advantage. The problem in Thailand is that the contribution of agriculture to GDP is declining more and more (currently about 10%), while about 40% of the population derives its (low) income from it. That will and must change. The remedy (also according to the World Bank) is more education for people in rural areas so that they can work in industry and services. There are already quality shortages there.
I see 2 major problems for Thailand in the near future, namely:
Firstly, the political instability, of course very relevant at the moment with the first deaths in the protests.
The main reason, of course, is the Thaksin clan that does not want to relinquish total control over Thai politics!
The only reason they can stay in power (and pocket massive sums of money during this period) is because of their populist practices, which in turn will also be detrimental to the economy. They have already managed to lose Thailand's position as No. 1 rice exporter with their crazy price guarantee to farmers.
The effect of the above will mainly affect the investment sector, big companies lose faith in how the government is running the country, as a fairly recent example of how the government sent one empty promise after another during the heavy floods, with heavy damage as a result in a large number of multinational companies where people were kept under the impression that everything was under control…
The whole political maze has very little effect on tourism, as long as there are no violent demonstrations (which, unfortunately, are apparently on the rise).
Secondly, in the very near future the borders will have to open and Thailand will have to compete effectively in terms of quality, efficiency and so on.
This is going to be totally detrimental, Thailand has always been able to farm reasonably well by regulating all competition through crazy rules and huge import taxes. As a result, they are not capable of handling this competition, the work ethic is a joke, quality has always been taken for granted, their products had to be bought anyway because everything that was better was artificially kept extremely expensive.
In addition, all heavier and less fun (but crucial) work is delegated to immigrants from neighboring countries, especially Laos, Myanmar and Cambodia.
This will also create serious problems, the available immigrants will decrease sharply when (actually already) the economy in Myanmar picks up and all their workers can earn an acceptable wage in their home country!
And Thailand simply does not have the people to replace them, they are going down the same path as we are seeing here in some European countries, a massive supply of trained people in sectors where there is no demand for them at all, and a massive shortage in sectors where the demand is huge, just like the so-called shortage professions that we have here in Belgium.
Thailand is going to have to get everything right, but the question is who is going to do it? The Thaksin clan clearly not, the competition is apparently not much better, they have good ideas but they don't get them realized.
In addition, people are always entrenched behind the "democratically elected" phrase, but what is democracy worth in a country where the elections are so corrupt, and where by definition the party that provides the most cash to the poor (and numerically the largest) part of the population can flow, with mountains of promises that this mostly uneducated group cannot make head or tail of…
With all their promises, they still have not managed to narrow the gap between the poor and the middle class, probably even the opposite!
I've lived there for just over 20 years (and been coming for a lot longer), so have seen the current problems grow from day one, and for what I'm about to say I'm probably going to get a lot of criticism, but Thailand has always had the been most stable, and relatively prosperous for the entire population, when it was under military rule.
I think that especially the older generations would like to see a military coup come back for this reason…