Going back 25 years ago, on July 2, 1997, the Thai authorities announced the floating of the baht. From the former using the exchange rate policy tied to the money basket. Switched to the Managed Float Exchange Rate Regime. This decision marks a major turning point in Thailand’s exchange rate policy. This made the currency inconsistent with the real economic fundamentals, depreciating from 27 baht per dollar to 50 baht per dollar. There was an attack on the baht. until it became a Tom Yum Kung crisis. impact all over the world
Currently, the baht is affected by the dollar factor again. until there is a weak direction In June 2022, the baht weakened to a five-and-a-half-year low (June 29, the market opened at 35.13 baht), while headline inflation rose to 7.10 percent, a 24-year high since 1998. It coincided with 1997 when the inflation rate reached 7.89 percent at that time. However, the current depreciation of the baht is consistent with several Asian currencies, The Indonesian rupiah is the weakest in more than a year and a half, the Malaysian ringgit is the weakest in more than five years, the won is the weakest in 13 years, the Philippine peso is its weakest in 16 and a half years, and The yen weakened to its worst in 24 years, all affected by the dollar.
If looking at the volatility of the currency today, it is found that although the picture began to flow out of investment in the stock market and the Thai bond market after the US accelerating interest rates But the volatility of the baht in 2022 is still at a level similar to that of other Asian currencies. Which has a volatility of around 4-6%, reflecting that the Bank of Thailand will continue to help monitor movements and reduce the volatility of the baht amid all uncertain factors. especially the timing of the US interest rate hike. global economic risks Concerns about inflation and oil prices as well as the current account balance situation The direction of capital flows in the financial markets and the recovery trend of the Thai economy
While the 1997 financial crisis originated from internal imbalance and currency binding. The private sector and financial institutions lack awareness of risks. Excessive spending and borrowing open risk Maturity and Currency Mismatch high foreign debt And there is widespread speculation in the real estate market. The overall economy has a chronic current account deficit problem. when the currency is attacked The Thai authorities need to use international reserves to maintain the stability of the baht. As a result, net international reserves at that time (June 1997) were reduced to only 2.8 billion baht.
But the current Thai economic situation is different. Because the impact that occurs mainly from external factors The point of change is noticeable. International reserves are much higher and stronger than in the past. The current level of net international reserves (reserves and net forward positions) of Thailand is approximately 251 billion baht (as of 24 June 2022), which can support short-term foreign debt, 3 months of imports, and Support for printing banknotes in full Meanwhile, the external debt ratio fell to 38.2% to GDP at the end of 2021. In addition, the authorities periodically took care of speculation in the real estate market through measures such as the setting of LTV criteria, thereby easing concerns about the aforementioned problems. down some which these pictures reflect the learning from the lessons of the past and the way to prevent Thailand from repeating the same
However, it must be admitted that The current economic situation in Thailand has problems from external factors. which is not the same as in the past Currently, the source of the problem is from Covid-19. The Ukrainian-Russia war that affected oil prices including the US interest rate hike This results in both immediate issues and structural problems that still need to be followed.
in terms of foreign debt From the lessons in the past, it reflects that the issue to be careful is The volatility of the baht’s depreciation will increase the debt burden. And when looking at only the short-term foreign debt with outstanding balance of 74.2 billion US dollars, it was found that about 58.8 percent or 43.7 billion US dollars. indebted to the business sector Therefore, foreign exchange risk must be managed in a way that is suitable for income-expense flows. in foreign currency for each individual
As for the debt of households, businesses and government sectors increased. when combined They accounted for 228.4%/GDP (90% household debt, 78.8% business debt, and 59.6% public debt/GDP), which was higher than 149.8%/GDP during 1997. Different and has a different cause than the 1997 crisis. In 1997, the source of the problem came from incurring foreign debt and borrowing through the BIBF, while the current situation Most of the private and public debts are debt denominated in Thai Baht mainly due to domestic liquidity. In addition, it must be admitted that Part of the reason for the increase in debt for both the public and private sectors is due to the surge of crises over the past few years. especially in the household sector It will be a long-term problem that needs to be taken care of. But it is unlikely to create short-term problems like the BIBF debt during the 1997 crisis.
When looking deeper into the dimensions of the economy, it is found that The current Thai economy has limitations on income growth going forward. The economy is highly dependent on tourism and related services. Therefore, although Thailand began to open the country But the recovery is not thorough and depends on the conditions controlling the situation of the disease. making the ability to earn especially of SMEs and the small population has not returned to normal. In addition, revenue growth going forward will be constrained by labor skill issues. Competitiveness of small and medium businesses Restructuring into the business of the future which is still in progress. But Thailand faces a rapidly changing global trade field. and stepping into an aging society This will further exacerbate the problem of labor shortage and burden on public health in the long run.
As for the status of Thai banks today, it is stronger than in 1997, but there are problems in reinforcing profitability to be comparable to pre-Covid levels, as well as taking care of the problem of non-performing loans. and expediting long-term debt restructuring for debtors Weaknesses in the banking sector that triggered the 1997 financial institution crisis have been steadily resolved over the years. especially in regards to integrated risk management and to cover risks that may arise in the future. including supervision of financial institutions in accordance with international standards (Basel III), making the current Thai banking system It is much stronger than in 1997, reflecting the stability of the capital fund level and high liquidity. including proactively managing bad debt problems The capital adequacy ratio stood at 19.79% (as of April 2022), which is higher than in 1997. The loan-to-deposit ratio was below 100% and the 1Q22 NPL ratio was 2.93% to total loans. However, the sustaining of income from the commercial bank’s core businesses in the slow economic environment It’s still a challenging situation. while on the other side Commercial banks also have a mission to take care of debtors (as of April 2022, there are approximately 12.1% of debtors under the assistance measures) and to expedite debt restructuring. especially in vulnerable groups in order to make the debt repayment burden suitable for the debtor’s potential and ability to earn income in the long term
from various economic and financial issues referred to in the comparison above, reflecting that The problems of the Thai economy today are not the same as in 1997 because Thailand has learned Adjust measures and rules to prevent repetitions. until making it stronger in many areas, such as the level of international reserves financial institution status And there is no broad speculation like in 1997. However, from the impact of external factors the whole covid crisis Ukrainian-Russian War high oil price problem and the US interest rate hike The important question is Helping households and businesses cope with specific problems such as inflationary pressures. cost of living/high cost and interest rates in the country that are going to increase, along with a plan to deal with structural problems both rising debt levels upgrading of labor skills Stepping into an aging society and accelerate the economic restructuring to occur quickly to reduce the barriers that limit future economic growth and income
Information: Kasikorn Research Center
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