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Tue, Oct 14, 2003 - Page 12 News List

Thailand's export competitiveness is eroding, bank says

STIFF COMPETITION With regional rivals that have currencies pegged to the US dollar, the rising baht is starting to hurt many Thai exporters

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Thai exporters, faced with a rising baht, are finding it harder to compete against rivals from China and other nations that have currencies pegged to the US dollar, central bank Governor Pridiyathorn Devakula said.

The baht has risen 10.6 percent this year, making it the third-best performing Asian currency against the US dollar. The US dollar has fallen about 6.5 percent this year against a basket of currencies from its largest trading partners, meaning the Chinese yuan has weakened along with it, as have the Malaysian ringgit and the Hong Kong dollar, both pegged to the US currency.

It's "hard to say how much longer," Thailand can continue with its flexible exchange rate currency, Pridiyathorn said at the World Economic Forum meeting in Singapore. Thailand's competitive position against nations such as China and Malaysia is "really eroding."

The central bank is concerned a rising baht may hurt exporters such as Thai Union Frozen Products Pcl and Hana Microelectronics Pcl. The Thai economy is expected to expand as much as 6.4 percent this year, led by exports and domestic consumption.

Thai exports in August rose 3.3 percent to US$6.47 billion, the slowest growth since May last year. The commerce ministry has not published figures for August and the numbers for the month were calculated by subtracting the eight-month figures from the past seven months' data. Exports rose 16 percent to US$51.2 billion in the eight months to August.

Thailand's central bank has been trying to "manage," the baht in a bid to help overseas traders, Pridiyathorn said.

"Because I manage to reduce short-term volatility, you give peace of mind to the exporters and importers," Pridiyathorn said. "But we never go against the long-term trend. We simply limit volatility."

Prime Minister Thaksin Shinawatra, under pressure from trade groups in the country to weaken the baht, said last week that state intervention to slow a rise in the currency can be "dangerous for the monetary system" if the government was acting against market forces.

The Thai baht collapsed in 1997 after the government unsuccessfully tried to defend the currency, triggering the Asian financial crisis.

China's yuan, which its government has pegged at about 8.3 per US dollar since 1995, has become a focus of criticism from US President George W. Bush as he tries to boost exports and create jobs before next year's presidential election.

Bush may raise the issue of China's currency policies and fair trade at the Asia Pacific Economic Cooperation Meeting, which Thailand is hosting, next week, spokesman Scott McClellan said.

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