Taking the Baht on Tour Abroad

Posted: 23 Oct 2010 | 10:56 am

The Phuket Gazette.

Daily news headlines lately have touted - for better or worse - the growing strength of Thailand's currency.

If the current economic situation were a children's fairytale, it could easily be titled "Jack, The Bean-stock and The Baht. As most of us know, Jack climbed higher and higher into the sky, until he disappeared into the clouds.

Most local residents and business folk on the ground, though, are sleeping these days with one eye open on the escalating baht.

Insomnia aside, questions looming about how tourism and property will be affected by the market gyrations remain in the realm of 'it's still too early to tell'.

At a time when Asian currencies are rising and booming regional economies are taking the US dollar for a beating, watchers of all things Thai remain perplexed about the underlying local fundamentals.

Exports remain a critical part of the larger economy, tracking anywhere from 55% to 60% of the GDP. Contrary to local wishful thinking, tourism weighs in at only 6.5%, though adding in an appropriately weighted service sector and related employment figures would see it hit double digits.

Despite a drop during the 2008 global financial crises and some jitters from the recent and ongoing political fallout domestically Thailand has weathered the storm in amazingly good form.

What is worrying analysts now is a huge inflow of foreign speculative investment into the country's coffers, effectively pumping up the baht like a balloon.

Long-term industrial investors are crying foul over the lack of currency controls, as mega-investments into industries such as automobile manufacturing for export are becoming less competitive by the day, given the currently unfavorable exchange rates.

From all this, two important questions have arisen. The foremost is: Will the economy be able to continue sustained growth if the all-important export GDP driver shrinks?

And of course for the local contingent of retirees who have US dollar savings or fixed income from abroad, the question is: Is it better for the baht be at 25 or 40 to the US dollar?

There are no easy answers.

For tourism, which has seen a strong shift to regional markets, the impact has been minimal as industry players also benefit from local currencies rising in value.

As Phuket has limited reliance on the long-haul US market, risk is naturally mitigated.

However, certain segments such as medical tourism, which caters to more affluent North American and European clients, is watching its 'value-for-money' attraction being swiftly eroded away.

Property players might expect a pessimistic outcome. The island has always attracted strong overseas interest from Hong Kong, Singapore and elsewhere throughout the region.

Many of these potential buyers have US currency savings or investments and the state of play today might have them warming the bench longer than anyone expected. One key aspect often overlooked is the domestic market for Phuket tourism, which has continued to grow year after year despite the machinations in the nation's capital.

As the so-called middle class, or 'more affluent white collar working class' see their baht grow, they are now looking to take holidays in the US or Europe, where there is simply more bang for their baht.

This is a similar trend to other Asian countries, where Thailand is expected to fuel tourism growth and now they may be redirected to longer haul destinations.

The message is clear: Phuket is not just competing with Bali, Langkawi or Vietnam - it is competing with the world.

For a growing number of local residents who have opted to retire or invest here, the attractiveness of a value destination is shrinking and more than a few businesses have opted to close shop. Many people are citing the rising cost of living in Phuket, but in fact much can be attributed to the number of higher-end shops and imported goods now available here.

Anyone wanting to view how base costs remain fairly constrained can simply take a trip to Super Cheap. Even as I write this, calls for intervention are taking place at every level for the flexing currency.

In the past we've had oil wars, the war on terror and now many opine on a East vs West fraction could lead to currency wars.

Tonight I will just have to be content to let my dog Koko keep an eye on the market as she tends to sleep with one eye open anyway.

DO YOU LIKE THIS?