Published on July 29, 2007
This New York-based fund manager, who preferred not to be named, recently learned that food is surprisingly cheap in Bangkok by Big Apple standards. For example, a decent dinner for five or six people at a middle-class Bangkok restaurant costs about Bt500, or just Bt100 (US$3.03) per head. For this price you would probably get just a few bites of a Big Mac meal in New York.
His rationale is that the baht has the potential to appreciate significantly in the near and medium term. As for the dollar, he simply shared the opinion that the global economy shouldn't depend forever on the US to be the world's single biggest market for all manufactured goods.
It's probably time now for the US to sell more to the rest of the world, especially to China, the world's biggest exporter. In the ongoing exchange-rate politicking, the Chinese yuan is therefore the primary target for further appreciation, but so far the strengthening of the currency has been less than expected.
So the market is awaiting a greater appreciation in the Chinese unit, after which other Asian currencies, including the baht, can be expected to go up further. This makes it even more necessary for Thailand to climb further up the value chain in order to stay competitive against China and Vietnam, where wages are comparatively lower.
The New York fund manager said his next stop after a few days in Bangkok would be Vietnam, where he will explore the economy from a macro perspective to see if it offers any good value for investment at this stage. With a population slightly larger than Thailand's, Vietnam might be able to duplicate the Thai economic and export model at a potentially lower cost.
He asked me what Thailand would do if that was the case. First, I suggested that it would take another 10-15 years before Vietnam could develop its physical infrastructure (highways, airports and sea ports) sufficiently to support and facilitate the export-led economic growth model used by Thailand over the past three or four decades.
Second, Thai businesses and industries are trying to carve out more niche positions in the global market to reduce dependence on traditional markets, where cut-throat competition is now rampant.
The fund manager asked me who would likely lead the post-coup government after the general election in December. I said Abhisit Vejjajiva, leader of the Democrat Party, was a hopeful, while General Sonthi Boonyaratglin, chairman of the Council for National Security (CNS), was another possible candidate.
He was slightly surprised about Sonthi being a candidate, but I assured him that the coup leader would have to be elected if he was going to return to power.
A few days later, Dr Voraphol Sokatiyalak, vice chairman of the National Economic and Social Advisory Council, told me that the Bank of Thailand should cut the policy interest rate by at least another 50 basis points to help slow the baht's appreciation while continuing to intervene in the foreign-exchange market to keep the currency within a target range.
In his opinion, reversing the upward trend is difficult and politically risky as the central bank might have to put up a lengthy and costly fight, with potential losses of Bt400 billion-Bt500 billion or more, before it could win and see the baht depreciate to 34-35 to the dollar. Would the public support the central bank if the losses ran to half a trillion baht?
Instead, he suggested that the government come up with a package of tax and other incentives to encourage export-oriented industries to quickly restructure by boosting productivity and innovation to stay competitive the global market. A strong currency, and lower interest rates, are favourable for big capital investments in new machinery, logistics facilities etc, both locally and abroad.