A strong baht will force Thai tuna processing plants and other exporting companies to work harder for their profits this year, but exporters have adjusted in the past to adverse exchange rate trends, and economists say global demand is a bigger factor than the currency-in-trade performance. Thai Union has said it would decide at the end of this month whether to revise its projected sales forecasts. It seems however inevitable that the strengthening of the local currency will drive Thai canned tuna prices up. Last year Philippine canneries faced a similar situation.
The baht has risen 5% against the dollar this year to its highest level since before the Asian financial crisis in 1997 as foreign money has flowed into the bond market, with a solid economy attracting foreign direct investment.
The Federation of Thai Industries, which has led calls for the authorities to act to lower the baht, said the rise in the past two weeks had been too rapid and that its members were finding it hard to cope with the volatility.
“It’s a cause for concern because the baht is much stronger than regional currencies,†said the federation’s chairman Payungsak Chartsutipol.
On Friday, the baht traded at 29.23 per dollar, having retreated from this week’s 16-year high of 29.07.
A day earlier, Finance Minister Kittirat Na Ranong said he wanted the baht weaker and lower interest rates to stem inflows of “hot moneyâ€, fuelled by quantitative easing in major world economies that has allowed investors to go in search of high-yield markets with funds raised cheaply at home.
The world’s biggest producer of canned tuna, Thai Union Frozen Products Pcl (TUF), which earned 90% of its USD 3.6 billlion sales from exports last year, is assessing the likely impact of the currency moves.
TUF president Thiraphong Chansiri said the company would decide at the end of this month whether to revise its forecast for sales of USD 4 billion this year.
“Comparing now to what happened in the crisis in 1997, this year’s problem is tougher. This time the baht is the only currency appreciating against the dollar,†Thiraphong said.
Economists argue that the baht is simply catching up with regional rivals: it rose just over 3% last year, whereas the Philippine peso rose 6.8% and the South Korean won 7.6%.
That provides little solace for manufacturers, who took months to recover from devastating floods in late 2011.
TUF had expected the baht to average 29.50 this year. It has forward contracts covering 50%70% of sales to help minimize currency effects.
It is the dollar exchange rate that matters most. In December 2012, 77% of Thai exports were paid for in dollars, 6.5% in yen, and 11.8% in baht. The figures have not changed much in recent years.
Kirida Bhaopichitr, the World Bank’s country economist for Thailand, said that the country’s export performance was more correlated to global demand than to the exchange rate, noting exports fell in 2009 even though the nominal effective exchange rate dropped.
