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Published on August 1, 2007

The current-account surplus bulged to US$6.2 billion (Bt210 billion) in the first half of the year as robust exports lifted the trade surplus to $5.1 billion, adding more upward pressure on the baht and stoking fears of risk aversion from capital movements.

Funds, however, have not yet flooded into the country as they did at the beginning of last month, as evidenced by the balance of payments posting a modest surplus of $5.7 billion in the first half, according to the Bank of Thailand's monthly economic report released yesterday. In June alone, the current-account surplus was $1.2 billion, of which $1.1 billion was a trade surplus and $0.1 billion a surplus in services and transfers.

The higher-than-expected growth of exports and moderate rise in imports were attributed largely to the improving external balance sheet. In the first half, exports soared 18.4 per cent on year to $70.6 billion, while imports rose to 6.4 per cent to $65.6 billion.

Central bank senior director Amara Sriphayak said domestic demand was recovering only gradually, so imports were not being sucked in that rapidly.

The continuing growth of exports along with the services and transfer surplus encouraged the central bank to upgrade its forecast for the current-account surplus for the entire year.

The forecast is now seen in the range of $7 billion-$9 billion, compared with $4 billion-$6 billion earlier, leading to concerns that the baht will continue strengthening over the rest of the year.

Domestic demand - consumption and investment - also picked up progressively in the second quarter.

The baht hit a 10-year-high in early July after foreign capital poured into the bourse, which appeared cheap against regional markets in price-to-earnings terms. The rapid appreciation of the baht caused exporters to panic and dump their dollars.

The volatile global capital scene was a main topic at recent meetings of international organisations, including the 42nd South East Asian Central Banks symposium hosted by the Bank of Thailand last weekend.

The 16 member countries and two observers believe volatile capital flows will not lead to a crisis as theeconomies have sound fundamentals.

But they were concerned about risk aversion when foreign capital starts gushing out of a country for any reason.

The carry-trade trend could reverse when interest rates change.

"We viewed that any measures to stem capital flows should be implemented carefully and at the right time. The measures to encourage capital outflows should be introduced, but we must be sure they must not become a problem when the situation changes. If capital flows reverse, the problem will be more severe," said Tarisa Watanagase, central bank governor.

She said the members had agreed that each must keep its economy strong and resilient enough to weather the volatility, although some argued that sound economic fundamentals would act as a magnet for capital inflows.

The members also reached a consensus that each central bank should seek cooperation from the public and private sectors to cope with the appreciating baht in the long term, she said, adding that the currency was not the sole factor eroding competitiveness.

Anoma Srisukkasem

The Nation