BANGKOK – A weaker baht will help the country’s exports and provide more of a boost to the struggling economy than a rate cut, one of the country’s deputy prime ministers said on Friday.
Record household debt has blunted the impact of already low rates on Southeast Asia’s second-largest economy. With exports worth more than half the country’s GDP, the government sees the stimulus from a weaker baht as a better bet for recovery.
“When I want to correct the economy, I’d rather play with the exchange rate,” M.R. Pridiyathorn Devakula, who is in charge of the economy, told Reuters.
M.R. Pridiyathorn said he would like to see more weakness in the Thai currency, already hovering at a six-year low against the dollar.
“I’d like to see the baht depreciating a little more,” said M.R. Pridiyathorn, a former finance minister and central bank governor. “It’s almost at the right level now.”
He declined to give a target level for the baht, which has weakened by 3.9% against the dollar this year, and on Thursday, touched levels last seen in 2009.
It would take three or four months for exports to feel the impact of the weaker baht, he said. That should come in time for orders during the fourth quarter, he added.
Exports would still likely contract in a range between 2% and 3% during the full year, he said. That would mark the third consecutive year that exports have fallen.
Weaker commodity prices have hurt the country’s export sector this year, but the decline in shipments is a longer-term trend that Thailand is struggling to reverse.
Some of the products it exports are becoming obsolete, and Thailand cannot compete with the cheaper labor costs of its neighbors in the lower-value manufacturing industries, he said.
The economy should still grow by around 3% this year as a rebound in tourism and quickening private and government investment compensate for falling exports, he said.
The increase in private investment should boost future capacity and push growth to around 4% in 2016 and then to 4-5% in 2017, he said.
Growth last year was 0.9%, the weakest since flood-hit 2011, as the political crisis that led to the May 2014 coup brought the country to the brink of recession.
MR Pridiyathorn says incentives for investors to switch to higher-value products for manufacturing are starting to pay off. Around a quarter of the 1,254 projects the country’s Board of Investment has approved this year are in the targeted industries, he said.
There was unlikely to be much change in Bank of Thailand policy with the transition to a new central bank governor later this year, he said.
This month, the junta appointed Veerathai Santiprabhob, a former International Monetary Fund economist, as the next central bank governor for five years, replacing Prasarn Trairatvorakul from Oct. 1.
MR Pridiyathorn said he had not come under pressure from the military junta, which has taken flak for the lacklustre economy, to offer more free-spending stimulus to boost growth.
“They have never advised me on economic policy,” he said.
MR Pridiyathorn was a staunch critic of the populist spending programmes of the government of Yingluck Shinawatra, which ended with the 2014 coup.
He said he had provided some support for farmers, but described it as only a “mild push”, compared to Ms Yingluck’s subsidies.
The drought affecting parts of Thailand would have a limited impact on the economy, he added.