Big projects, R&D can ease baht pains

Lower dollar reserves also seen as way out

BUSRIN TREERAPONGPICHIT

Increased state spending on megaprojects and research and development activities could ease the impact of baht appreciation, according to prominent industrialists and bankers. The continuing appreciation of the baht was the main concern voiced by the industrialists and bankers attending the Thai Industry Outlook in 2007 seminar held on Monday evening by the Federation of Thai Industries.

While most of them remained confident that the Thai economy would achieve the 4-4.5% growth target, baht volatility would be a key factor that could have worse-than-expected impact on the economy.

Vichit Suraphongchai, executive chairman of Siam Commercial Bank, said the baht was likely to strengthen further as a result of US efforts to allow its currency to weaken in order to reduce its massive trade deficit.

''If the government can't control the baht, we'll need to worry about it,'' said Dr Vichit.

He said that governments would try to reduce the proportion of the US dollar in their reserves in favour of the euro as well as emerging countries' currencies such as China's yuan in order to keep their currency values at optimal levels.

In fact, Middle Eastern countries and China are cutting back on their dollar reserves by spending them on both private and public construction projects.

He suggested the Thai government do the same to reduce the baht's dependency on the greenback.

Kan Trakulhoon, the president of the Siam Cement Group (SCG), shared the banker's view.

''The government's expenditures on megaprojects will also help stimulate domestic consumption during the hard times,'' he said.

As one of the country's largest exporters, SCG will record a foreign-exchange loss of 800 million baht for every one-baht appreciation against the US dollar above its hedging rate, which stood at 37.50 baht last year.

Mr Kan said that despite uncontrollable external factors, the government could take measures to spur the economy. At the same time, the private sector also needed to adjust to cope with the current hardships.

Research and development should be a main focus during the period of slow business activity such as this year. Companies now have time to strengthen their competitiveness and brace themselves for competition once demand recovers, he added.

Boonsithi Chokwatana, the Saha Group chairman, said business activities had slowed since early last year while the baht continued to rise against the dollar, with no signs of abating any time soon.

Under such a circumstance, businessmen need to be cautious with their investments, Mr Boonsithi said.

''If you aren't sure, I suggest that you not move,'' he added.

Bangkok Post
Wednesday January 31, 2007