Baht speculation 'rampant'

April 4, 2001

BAHT speculation, detectable as capital outflow - Thais taking money out of the country - has become so rampant that it threatens the Thaksin government, analysts warned.

The baht has fallen steadily since the beginning of the year, its decline accelerating in the past two weeks. The currency touched a 37-month low yesterday of 45.40 against the dollar during one trading session, before bouncing back to 45.28 at the day's end.

The spectacular fall has pushed banking authorities' backs against the wall. While the baht has weakened in tandem with the yen, signs have emerged of rampant speculation beyond fundamentals.

"You just need to take a look at the current account," said one financial analyst. "We still have a current-account surplus, which means there is more money flowing into the country than flowing out, or that [dollar] supply exceeds demand. If this is the case, there should be no reason for the baht to weaken so drastically or so quickly."

"But now we have more demand for the dollar than supply. There is one reason for this - we are seeing intense baht speculation - because I don't believe there has been much debt repayment. In other words, money is flowing out of the country."

This could be dangerous for the Thaksin government, if it fails to come up with appropriate measures to restore confidence. Prime Minister Thaksin Shinawatra's trial before the Constitution Court over allegations that he concealed assets is not helping, either.

Thaksin came out yesterday to quell speculation, insisting that the baht would not hit Bt47 to the dollar as rumoured, and that the country was unlikely to face another financial crisis.

"They may be paranoid," he said of analysts, "but our economy is not that bad."

Government officials hope the baht won't weaken beyond 46 to the dollar, one high-ranking official said.

As of February 2001, the current-account surplus stood at US$798 million (Bt36.1 billion), compared to $222 million in January - the month in which the country recorded its first trade deficit in about three years: $282 million.

This critical trade figure spooked the baht. The balance of pay-ments in February showed a surplus of $299 million. Banking authorities are working hard to plug the capital outflow, but information about this is beyond the reach of most people.

Finance Minister Somkid Jatusripitak refrained from commenting on the baht yesterday. But on Monday he appeared frustrated by its excessive weakness.

He said he had told the Bank of Thailand (BOT) to monitor trading closely to determine whether there was any speculation involved. If any were discovered, the central bank would penalise the parties involved, he said.

Somkid's remark reflected official worries over speculation, which appears to have grown out of concerns about the economic slowdown and the government's ability to keep the economy afloat. Whenever the baht has fallen in the past, authorities have supplied a ready-made answer, saying, for example, that Bt40-Bt42 against the dollar would be an appropriate rate.

But this time around, there is no bottom in sight for the baht.

In Kuala Lumpur, BOT deputy governor Pakorn Malakul Na Ayutthaya told Reuters the central bank was keeping a close eye on the baht and might act if the currency becomes too volatile.

"We are watching the exchange rate movement very closely," Pakorn said. "Of course, if the baht becomes too volatile we will consider taking action in order to curb the volatility."

Pakorn's rare public acknowledgement of possible official intervention in the market was partly designed to deter further speculation against the baht.

In Bangkok, BOT spokesman Bandid Nijathavorn moved quickly to try to cool baht speculation, releasing a brief statement aimed at assuring investors that the country's foreign debt was under control.

As of January, the statement said, the country's foreign debt totalled $79.7 billion, down $6 billion from December. Moreover, the ratio of long-term external debt to short-term debt stood at 81:19.

Bandid also said the baht's recent weakness was in line with a weakening of currencies throughout the region in the wake of the yen's slump. Over the past two weeks, authorities had found no abnormal transactions in the dollar-baht exchange rates, he said.

But like Somkid and Pakorn, Bandid sounded some alarm bells, saying banking authorities did not want to see speculation in the baht.

"The baht has been quite volatile in the past two weeks, a situation which the central bank needs to closely monitor. The BOT will try to see to it that the exchange rate fluctuates slowly."

"The central bank will see to it that the baht reflects economic fundamentals," he said. He gave no further details.

BY THANONG KHANTHONG