Baht devaluation inevitable after Thai political turmoil
Baht devaluation inevitable after Thai political turmoil
HONG KONG (Reuter): A devaluation of the baht has become virtually inevitable following last week's market mayhem and political turmoil in Thailand, analysts and investors say.
"The longer they leave it, the worse it gets," said Daniel Hemmant, currency fund manager with Guinness Flight Asia Ltd.
Political and economic uncertainty after Thursday's resignation by finance minister Amnuay Viravan helped wipe another 6.85 percent off Bangkok's battered stock market and forced the cancellation of three weekly government note auctions.
Banker Thanong Bidaya was confirmed as Thailand's new finance minister on Friday but, as Thailand's fifth finance minister in two years, the appointment lacked confidence.
"To lose one finance minister may perhaps be bad luck. To lose five in two years during the terms of three administrations smacks of plain bad government," the South China Morning Post said in an editorial on Saturday.
"(Thanong Bidaya's) long background in banking stamps him as a figure of experience as a financial manager -- but does he have the political savvy to navigate the treacherous political waters which surround Bangkok?"
Fund managers hoped that the change could signal some flexibility in the management of Thailand's fixed exchange rate despite prime minister Chavalit Yongchaiyudh's renewed commitment to defend the currency last week.
"Some people have suggested that perhaps a new finance team may be a little bit pro-devaluation, although that might be misplaced optimism," said James Wilson, institutional sales manager at Deutsche Morgan Grenfell.
Persistent attacks against the baht forced the government to institute capital and foreign exchange controls, closing off all possible avenues for speculators.
"It's very volatile and I think the consensus would opt for devaluation or depreciation sometime over the next six months but when it happens is anybody's guess. It depends how strong the new finance team is in supporting the baht," Wilson said.
Thailand's economy is in tatters, with punishingly high interest rates, weak exports and a current account deficit at six percent of gross domestic product.
"There's an element of face involved. It's hard to be very enthusiastic until there is some definitive action taken and things start to improve," Hemmant said.
He added better disclosure by the banking sector -- which could reveal excessive ratios of non-performing loans -- would speed up measures to reduce interest rates.
"And the standard way of healing a financial sector is to run with very low interest rates and a steep yield curve," Hemmant said.
But Geoff Lewis, chief economist at Dresdner Kleinwort Benson in Hong Kong, warned that a devaluation was certainly not a solution for all Thailand's woes.
"We don't think devaluation is a magic solution. The risks have been increased by Amnuay's replacement -- but this is not an argument about economic policies, it's an argument about political infighting," said Lewis.
Thai bank -- Page 12