BANGKOK – The baht is posing problems for Thailand again, 20 years after a sudden devaluation sparked chaos worldwide. Today, Asia’s best-performing currency is too strong for a country that derives 70 percent of economic activity from exports, and which must fend off competitive threats from China to India.
Graphic: Year-to-date percentage change in Asian currencies versus the U.S. dollar:
Throw in a booming tourist trade, rising currency reserves and a current-account surplus, and the baht is a buy, at least for now. But the fundamental backdrop is weaker. Three-plus years of opaque military rule might normally deter investors. The deeper problem is the glacial pace of structural upgrades needed to increase innovation and productivity, attract foreign-direct investment and avoid the dreaded middle-income trap.
In 2014, the junta led by General Prayuth Chan-ocha grabbed power pledging to steady a nation plagued by legislative gridlock and massive street protests after 10 leadership changes in as many years. Prayuth promised the get-things-done competence that military leaders often use to justify a coup.
But things haven’t gone to plan. Thailand’s 3.7 percent year-on-year growth, which lags many peers, is the product of external factors and populist pump-priming. The junta has moved slowly on an ambitious $45 billion programme to upgrade roads, ports, and power grids, which is vital to encouraging the Toyotas and Samsungs of the world to create more Thai jobs. Efforts to eradicate corruption, cut red tape and reduce bank bad-loan ratios worse than China’s have been tepid. And the workforce lacks the education needed to lift per-capita income above $10,000 from today’s $6,000. As a result, private-sector investment is lagging.
In the long run, a currency is only strong as the foundations underpinning it. This junta has overseen the longest stretch of military rule since the early 1970s. If it doesn’t put some big reforms on the scoreboard, the baht could fall foul of economic gravity.
By William Pesek – REUTERS