Eased rules cause thai baht to surge...

[Lancelot]

From July 10, 2007 Bangkok Post

Bangkok Post : Business news


The baht continued to gain ground against the US dollar yesterday, reaching a new 10-year high at 33.77/8 to the greenback. The gain came as the Bank of Thailand announced that it would allow foreign investors to renew swap contracts with local banks for certain transactions over a one-month window. The move aims to reduce the gap between local and offshore rates. The baht was quoted at 31.65 to the dollar in offshore trade.


Most Asian currencies closed higher yesterday against the dollar on expectations of stronger economic growth and continued capital inflows into the region. Regional equity markets also closed higher, with Sydney, Mumbai, Hong Kong, Jakarta and Seoul all closing at all-time highs.

Suchart Sakkankosone, the senior director for the central bank's exchange control and credits department, said hat foreign investors could now hedge their currency exposure for certain transactions with local banks.

The rule change would help reduce the gap between the onshore and offshore markets, he said.


The baht has effectively been split between the onshore and offshore markets since last December, when the Bank of Thailand imposed stringent capital controls to curb ''hot'' capital inflows that had led to a 15% appreciation of the baht in 2006.


Mr Suchart said the regulatory change would help foreign banks and non-resident investors who had undertaken currency swaps with hedging in the offshore market. These markets came under pressure due to low liquidity following the 30% reserve rule on inflows imposed on Dec 18.

The central bank would now allow foreign investors to hedge their exposure in the domestic market for transactions matched with an underlying investment as long as that investment originated before Dec 19, 2006.

Investors unable to complete the transaction within the timeframe could apply for an exemption from the central bank.


Mr Suchart said that onshore swaps for qualifying transactions would be exempted from the 30% reserve rule, and could be taken from July 16 through Aug 17.


He said the thin liquidity in the offshore market meant that investors closing open positions faced higher financing costs due to the baht's scarcity. This in turn resulted in further pressure on offshore rates for the baht to appreciate, which had a psychological impact on domestic rates.

''Before the 30% reserve rule was imposed, there was no rule that hedging had to be made with Thai institutions. As a result, some foreign investors undertook hedging transactions with foreign institutions,'' he said.

Mr Suchart stressed that foreign investors could sell dollars onshore to close contracts only to match their actual investment transactions priced at existing market rates.


The offshore contract could only be closed with an onshore contract at the maturity date of the original deal, he added.


The Dec 18 rule required foreign investors to set aside a 30% reserve for inflows into certain asset classes.


But the rule has been made largely moot, with exemptions offered for foreign direct investment and equity investments. The central bank has also waived the rule for inflows fully hedged against currency risk.

Usara Wilaipich, a senior economist with Standard Chartered Bank, said the measure would help to narrow differentials between onshore and offshore baht exchange rates.


''In the end, the measure will help to improve sentiment. The closer gap between the two markets should prove supportive for the central bank's lifting of the 30% reserve requirement in the future,'' she said.

But a local treasurer, who asked not to be named, said the measure could result in more Thai currency circulating in the offshore market.

''The measure would help to bring the offshore baht rate and swap premiums closer to the onshore market. But it may fail to address the long-term problem,'' he said.


The measure would increase the central bank's workload as it limited the screening process to a one-month period.

''The central bank should allow investors to obtain baht liquidity gradually, instead of setting 'golden minutes'. There could be limitations as to how well the central bank could screen cases,'' the trader said.

Thiti Tantikulanan, the head of capital markets at Kasikornbank, said that recent trends indicated that the baht would continue to appreciate.

The currency could possibly reach 33.70 to the dollar by the end of the week.


''The baht is likely to continue to strengthen due to strong fundamentals. For instance, Kasikorn Research Center projects the current account surplus this year to be as high as $12.5 billion,'' he said.
Mr Thiti said the central bank's rule change yesterday would have no real impact on the currency, noting that the baht continued to strengthen in intraday trade.

[Ed_The_Gypsy]

A surging bhat. The mind boggles.

[Lancelot]

Stickman weighs in on the USD decline...

Is The Dollar Killing You?

Is The Dollar Killing You?
The US dollar has taken a hammering over the past couple of years. Two years ago, changing US banknotes on the streets of Bangkok would have got you 42 baht for every dollar exchanged. Today, you will get a little over 33 baht. That's a fall in the value of the US dollar of more than 20%.

The US dollar’s decline - and that is what it is, a decline in the dollar as opposed to a strengthening in the baht - has been big news in the mainstream press every day for some time now. The Thai baht is actually down against some currencies, particularly the "commodity currencies", the Australian, New Zealand and Canadian dollars. So while you might hear that the Thai baht is at unrealistically high levels, that relative strength is predominantly when compared with the US dollar and not necessarily relevant to the cross rates with other currencies.

Of course there are both advantages and disadvantages to currency fluctuations. On the positive side, the baht’s strengthening against the US dollar has meant that the price of petrol has remained relatively steady and it is still around 30 baht to the litre. In theory the cost of imported US-manufactured goods may drop but frankly, does the US actually make anything these days? That economy seems to be all about consumer spending and intellectual property - so while the cost of American manufactured goods sold in Thailand may decrease, I personally cannot think of one single thing, American-made, that I personally buy.
For American tourists, Thailand just got a lot more expensive. I guess it's lucky that it was reasonably cheap to begin with.

This is a very narrow look at the effects of currency fluctuation and there are more far-reaching consequences of currency fluctuations including the competitiveness of businesses in one country compared to another and the ability of companies or even governments, to repay loans which may be US dollar denominated.
But I digress. Such is not the focus of this column, nor this particular article. We’re more concerned about Westerners in Thailand and the effects of the dollar's decline on them.
So how is the dollar's dive affecting life on the streets of Bangkok for Americans here? I spoke to a number of Americans this week (Americans make up approximately 40% of the readers of this site) in an effort to establish if the dollar’s sharp fall has resulted in any change in their lives.



The Teacher

A long term English teacher in the Land Of Smiles, he works at one of the big name international schools. His salary is much higher than your typical language teacher.
OK, so he is on a better deal than most, but he is still an English teacher. The dollar's decline has put him in a most unusual situation in that he now earns more in Thailand than he would in the US!
He has often thought about ending his time away from the States and returning to his roots, but with his earnings now greater than what he expects he would earn at home, he is in no hurry.

In fact his plan now - quite different to how it was when he first came to Thailand - is to save his pennies so that when he returns to the US he may have a reasonable sum to take home with him!

In terms of day to day living, he is now trying to spend a little less and is conscious about saving money and sending it home while the rate is good. But then he has to wonder, should he send it home now, or wait a bit longer. Another 10% movement and it'll be getting close to 30 baht to the dollar! When he first came here it was 43 baht to the dollar!

The Modest Retiree

One of my favourite people in all of Thailand, he retired to Thailand a few years back, settling into a pleasant, but relatively quiet life in Fun City.
Since relocating to Pattaya from the US six years ago, he has remained constantly aware of the dollar-baht exchange rate. Actually, the first thing he did - and still does - each morning was check online or on TV to see what he could expect should he elect to withdraw baht from his US bank account that day. For most of his first couple of years here, that ritual was more a matter of curiosity. Fluctuations seemed inconsequential and movement seemed to be up and down for both currencies. The exchange rate had little bearing on his lifestyle or spending habits.

But then the dollar dipped below 40 baht for the first time in years. That caught his attention! In fact, that’s when he began to withdraw baht from his local savings account instead of using the ATM to withdraw from his US dollar account. He thought he’d wait it out until the dollar edged above 40 again. It wasn’t to happen.

Over the past three years, he's just about tapped out his reserves of Thai baht (and, unfortunately, will be forced to replenish that account before he tries to renew his one-year visa. He doesn’t even want to think what the exchange rate will be then).

He has been forced over the last year or so to withdraw from his dollar account at exchange rates ranging from 38 to 36; then down to 35 and 34 over the last few months. And now, the real shocker, just this past week the dollar reached a 10-year low dipping to 33.9 baht.

He's not moving out of his sea view apartment or selling any assets. But he's changed his mind about buying a car or even a less expensive pick-up truck. As recently as last Spring he and his lady were talking about buying a vehicle to allow them to make frequent visits to see her family. Such a major expenditure is now out of the question. So are the frequent visits. In fact, he's also dismissed any plans for flying back to the States anytime soon. And he won't renew his health club membership. When he last paid his one-year membership, it cost a discounted rate of 19,000 baht (then about $500 US). This year, not only has the club raised its annual fee from 24,000 baht to 38,000 baht, but with the devalued dollar, membership renewal would now cost the equivalent of $1,121 (compared to $500 last year!)

While one wouldn't say they are economising beyond abandoning luxuries and major expenditures, he has become a bit more frugal in his thinking - if not in his spending. He continues to eat well and shop for whatever day to day purchases he wants or needs, but might not order that more expensive Australian steak in a restaurant, or might not buy that striking shirt that he really doesn’t need. At home he seems to use overhead fans more and the air conditioning less.

Because he has the benefit of some local income - which helps pay bills and allows him to reduce the amount he withdraws from his US bank, he has not been hit as much as it has some of his friends who retired young, thinking that $200,000 - then the equivalent of 8.4 million baht - would last a lifetime in Pattaya. But now that $200,000 nest egg is worth only 6.7 million baht. Still a hefty sum, but with no additional income, his pals are forced now to map out long-term budgets for the future.
It should be noted that for those guys wishing to retire in Thailand, you need to show, amongst other things, a local savings account with 800,000 baht or an income at a certain level, 65,000+ baht per month, if I am not mistaken. You would now need more capital, or to have simply saved more money, to be producing that kind of income.

Summary
A friend of a friend in the US says he has cancelled plans to visit Thailand next month due to a combination of higher air fares and the lower dollar. Another friend of a friend was to have vacationed here for two months but has rescheduled. He will spend one week in Thailand and the rest of the two months in Cambodia and the Philippines.
The dollar is also weaker against the Philippine peso, but only by 10% (it was about 50 pesos to the dollar a year ago and now it is just above 45), and prices have apparently largely remained unchanged there - but not so here it must be said.
The US dollar's dramatic, but not unexpected, fall has changed the way many Americans in Thailand think about their spending. The most dramatic change has been for retirees. With the US dollar now worth 20% less against the baht, their income and their savings have essentially dropped by 20% too. For those guys who had a significant buffer it will not have caused a headache, but for anyone who retired early, or perhaps had not thought things through carefully, this could prove to be rather stressful.
If nothing else, the fall of the dollar shows how vulnerable retirees in foreign countries are. It does also create opportunity and I have little doubt that some will profit from it.

[Ed_The_Gypsy]

This is why I am 50% US / 50% international.

[Orchidflower]

I'll share this true story with you: My father was born in Greece and, at age 82 when he finally retired, he moved back to a suburb of Athens. He made a huge amount of money and spent every dime of it while he was making it (his lifestyle, so we never expected an inheritance).
He had a little over $800 in Social Security--this was about 25 years ago when that was considered good--when he moved to Greece. His costs we figured would be $200 for the apartment $200 for food and essentials and--given that he loved to party and entertain the ladies--that left $400 to completely blow on good times. This was, we thought, an ideal situation for him.
Within about 2 years the dollar plummeted...and I mean plummeted. He had to come back to the States as he could no longer live on $800 at all--even if he cut out the good times and partying.
Needless to say, he moved back to the States to live where he actually could survive on his $800. But his old lifestyle was definitely gone for good.
So, this can happen and should be a consideration to all thinking of relocating to a foreign country. Scary, eh?

[Billy]

Thanks Lance,
Once again we are in interesting times here in Thailand.

Billy

[ForeignExchange]

Forbes

07.10.07, 8:20 AM ET

Thai finance minister tells central bank to 'properly manage' rising baht

[Sam]

Quote:

Originally Posted by Orchidflower So, this can happen and should be a consideration to all thinking of relocating to a foreign country. Scary, eh?

Yes, it can happen to any foreign country, including the USA. Jimmy Carter's era is still fresh in many people's minds.

[Lancelot]

Quote:

Originally Posted by Orchidflower I'll share this true story with you: My father was born in Greece and, at age 82 when he finally retired, he moved back to a suburb of Athens. He made a huge amount of money and spent every dime of it while he was making it (his lifestyle, so we never expected an inheritance). He had a little over $800 in Social Security--this was about 25 years ago when that was considered good--when he moved to Greece. His costs we figured would be $200 for the apartment $200 for food and essentials and--given that he loved to party and entertain the ladies--that left $400 to completely blow on good times. This was, we thought, an ideal situation for him. Within about 2 years the dollar plummeted...and I mean plummeted. He had to come back to the States as he could no longer live on $800 at all--even if he cut out the good times and partying. Needless to say, he moved back to the States to live where he actually could survive on his $800. But his old lifestyle was definitely gone for good. So, this can happen and should be a consideration to all thinking of relocating to a foreign country. Scary, eh?

Good story Orchid, thanks for sharing

Despite my grumbling Thailand is still affordable; however, it's not the bargain (in USD terms) that it was only one year ago...

[Orchidflower]

If you are ever trying to lose weight...just visualize an old guy of 82 or older...uh...er...."entertaining" the ladies (if you get my drift). That's what his kids do when they are trying to lose weight...ewwwwwww!
I'm glad a few of you understand that this does happen everywhere. For ages my father thought he would be going back to the Mecca he left at 6...but, alas! it was just like America in many ways...you are so right.

[Lancelot]

Quote:

Originally Posted by Orchidflower If you are ever trying to lose weight...just visualize an old guy of 82 or older...uh...er...."entertaining" the ladies (if you get my drift). That's what his kids do when they are trying to lose weight...ewwwwwww! I'm glad a few of you understand that this does happen everywhere. For ages my father thought he would be going back to the Mecca he left at 6...but, alas! it was just like America in many ways...you are so right.

82 and "entertaining the ladies..."

Orchid, your father is my hero