Identifier
Created
Classification
Origin
06BANGKOK7435
2006-12-15 06:18:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Bangkok
Cable title:
"GRAVE CONCERN" ABOUT PRIVATE INVESTMENT IN
how-toVZCZCXRO5906 PP RUEHCHI RUEHDT RUEHHM RUEHNH DE RUEHBK #7435 3490618 ZNR UUUUU ZZH P 150618Z DEC 06 FM AMEMBASSY BANGKOK TO RUEHC/SECSTATE WASHDC PRIORITY 3458 INFO RUCNASE/ASEAN MEMBER COLLECTIVE PRIORITY RUEHCHI/AMCONSUL CHIANG MAI PRIORITY 2829 RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
UNCLAS BANGKOK 007435
SIPDIS
SENSITIVE
SIPDIS
STATE FOR EAP/MLS AND EB
COMMERCE FOR EAP/MACK/OKSA
TREASURY FOR OASIA
STATE PASS TO USTR FOR WEISEL
STATE PASS TO FEDERAL RESERVE SAN FRANCISCO FOR DAN FINEMAN
STATE PASS TO FEDRAL RESERVE NEW YORK FOR MATT HILDEBRANDT
E.O. 12958: N/A
TAGS: EFIN ECON TH
SUBJECT: "GRAVE CONCERN" ABOUT PRIVATE INVESTMENT IN
THAILAND
UNCLAS BANGKOK 007435
SIPDIS
SENSITIVE
SIPDIS
STATE FOR EAP/MLS AND EB
COMMERCE FOR EAP/MACK/OKSA
TREASURY FOR OASIA
STATE PASS TO USTR FOR WEISEL
STATE PASS TO FEDERAL RESERVE SAN FRANCISCO FOR DAN FINEMAN
STATE PASS TO FEDRAL RESERVE NEW YORK FOR MATT HILDEBRANDT
E.O. 12958: N/A
TAGS: EFIN ECON TH
SUBJECT: "GRAVE CONCERN" ABOUT PRIVATE INVESTMENT IN
THAILAND
1. (U) Amid pressure to take action in the face of a rapidly
appreciating currency and tepid economic growth, on December
13 Thailand's Monetary Policy Committee met and decided to
keep the Bank of Thailand (BoT) policy rate unchanged at 5
percent. Committee chair and BoT Assistant Governor Suchada
Kirakul told the press after the meeting that the BoT has
"grave concern" over the slow growth of private investment
which has increased only 2.9 percent through Q3 2006 while
GDP has increased 4.7 percent over the same period.
2. (U) Private investment has been in a declining trend since
2004 even while capacity utilization has been increasing.
While Suchada expressed confidence that private investment
will increase next year due to high corporate and financial
sector liquidity , low inflation and increased RTG spending,
some private sector analysts have noted the strong
correlation between export growth and private investment and
expect the strength of the baht to limit export growth going
forward and, therefore, limit private investment as well. The
investment bank UBS, for example, has lowered their GDP
forecast for 2007 from 3.9 percent to 3.5 percent.
3. (SBU) Further hindering investment and the general
confidence level has been the strength of the baht which has
appreciated over 14 percent against the US$ this year.
According to Citibank's Bangkok branch manager for F/X, other
regional currencies have appreciated less against the dollar
in 2006 ranging from the Korean Won up about 11 percent, the
Indonesian Rupiah 7.5 percent, Malaysian Ringgit 6 percent
and Philippine Peso 8 percent. The reasons given for the
outperformance of the baht include:
- The baht underperformed in 2005 and is merely "catching up'
to other Asian currencies.
- Thai exports have done especially well this year and Thai
exporters typically do not hedge. There has therefore been
unusually heavy inflows of US$ even as import growth has been
low due to stable oil prices, low consumer demand and low
private investment. One bank currency trading desk official
told us that every time the baht depreciates slightly,
exporters who have not yet converted their dollar earnings
quickly enter the market and the baht resumes its upward
trend.
- There is almost no borrowing in US$.
- Tourism income has been above expectations.
- There is a general sense that the US$ will continue to
weaken for some time.
- The BoT, having learned their lesson from trying to
intervene heavily in 1997, now only intervene on the margins.
4. (SBU) Comment. As Thailand has grown into a middle income
economy, it has inevitably been losing its competitiveness in
labor intensive exports to competitors in China and other
less developed SE Asian neighbors. That fact accounts for
some of the decline in FDI. However, private investment is
further restrained due to the continuing debate in Thailand
about how to handle the question of foreign participation in
the services sector. Thai law limits foreign ownership to 49
percent; a limitation that since the promulgation of the
Alien Business Act 30 years ago has routinely been avoided
through he use of nominee companies and shares with differing
voting rights. Since mid-year the RTG has been debating how
to close these loopholes and thereby created significant
uncertainty among foreign investors considering investing in
Thailand. Between the growing domination of China and
Vietnam's emergence as the new "hot spot" for FDI, added
uncertainty in Thailand only adds to the uphill battle to
attract additional inward investment to this country. An
appreciating baht that increases the relative cost of doing
business here only adds a further complication.
ARVIZU
SIPDIS
SENSITIVE
SIPDIS
STATE FOR EAP/MLS AND EB
COMMERCE FOR EAP/MACK/OKSA
TREASURY FOR OASIA
STATE PASS TO USTR FOR WEISEL
STATE PASS TO FEDERAL RESERVE SAN FRANCISCO FOR DAN FINEMAN
STATE PASS TO FEDRAL RESERVE NEW YORK FOR MATT HILDEBRANDT
E.O. 12958: N/A
TAGS: EFIN ECON TH
SUBJECT: "GRAVE CONCERN" ABOUT PRIVATE INVESTMENT IN
THAILAND
1. (U) Amid pressure to take action in the face of a rapidly
appreciating currency and tepid economic growth, on December
13 Thailand's Monetary Policy Committee met and decided to
keep the Bank of Thailand (BoT) policy rate unchanged at 5
percent. Committee chair and BoT Assistant Governor Suchada
Kirakul told the press after the meeting that the BoT has
"grave concern" over the slow growth of private investment
which has increased only 2.9 percent through Q3 2006 while
GDP has increased 4.7 percent over the same period.
2. (U) Private investment has been in a declining trend since
2004 even while capacity utilization has been increasing.
While Suchada expressed confidence that private investment
will increase next year due to high corporate and financial
sector liquidity , low inflation and increased RTG spending,
some private sector analysts have noted the strong
correlation between export growth and private investment and
expect the strength of the baht to limit export growth going
forward and, therefore, limit private investment as well. The
investment bank UBS, for example, has lowered their GDP
forecast for 2007 from 3.9 percent to 3.5 percent.
3. (SBU) Further hindering investment and the general
confidence level has been the strength of the baht which has
appreciated over 14 percent against the US$ this year.
According to Citibank's Bangkok branch manager for F/X, other
regional currencies have appreciated less against the dollar
in 2006 ranging from the Korean Won up about 11 percent, the
Indonesian Rupiah 7.5 percent, Malaysian Ringgit 6 percent
and Philippine Peso 8 percent. The reasons given for the
outperformance of the baht include:
- The baht underperformed in 2005 and is merely "catching up'
to other Asian currencies.
- Thai exports have done especially well this year and Thai
exporters typically do not hedge. There has therefore been
unusually heavy inflows of US$ even as import growth has been
low due to stable oil prices, low consumer demand and low
private investment. One bank currency trading desk official
told us that every time the baht depreciates slightly,
exporters who have not yet converted their dollar earnings
quickly enter the market and the baht resumes its upward
trend.
- There is almost no borrowing in US$.
- Tourism income has been above expectations.
- There is a general sense that the US$ will continue to
weaken for some time.
- The BoT, having learned their lesson from trying to
intervene heavily in 1997, now only intervene on the margins.
4. (SBU) Comment. As Thailand has grown into a middle income
economy, it has inevitably been losing its competitiveness in
labor intensive exports to competitors in China and other
less developed SE Asian neighbors. That fact accounts for
some of the decline in FDI. However, private investment is
further restrained due to the continuing debate in Thailand
about how to handle the question of foreign participation in
the services sector. Thai law limits foreign ownership to 49
percent; a limitation that since the promulgation of the
Alien Business Act 30 years ago has routinely been avoided
through he use of nominee companies and shares with differing
voting rights. Since mid-year the RTG has been debating how
to close these loopholes and thereby created significant
uncertainty among foreign investors considering investing in
Thailand. Between the growing domination of China and
Vietnam's emergence as the new "hot spot" for FDI, added
uncertainty in Thailand only adds to the uphill battle to
attract additional inward investment to this country. An
appreciating baht that increases the relative cost of doing
business here only adds a further complication.
ARVIZU