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Thailand: Rising baht drives Thai exporters to wall

Thailand: Rising baht drives Thai exporters to wall

Write: Inas [2011-05-20]
Naris Wongsanthitham is stressed. His small wood company in rural Thailand is facing ruin because of the breakneck rise of the baht against the dollar and all he gets from the government is permission to open a dollar bank account and a sermon about innovation and "value-added."

"We can't hold dollars forever. We are in Thailand - get real!" the 40-year-old said at his factory, which employs 250 people making salad bowls, chopping boards and bread bins in Lampang, 600 kilometers north of Bangkok.

"And stop telling us to adjust and adjust. We've done a lot of adjusting already. And value-added? How do I add value to a chopping board? Line it with precious stones?"

As with thousands of small, medium and large export businesses across the country, Naris' life has become a daily ritual of calls to customers asking if he can raise his prices and calls to suppliers asking if they can cut theirs.

With exports accounting for nearly two thirds of the Thai economy, Naris' problem is a national problem.

"Business is very bad. The baht is hitting us a great deal," he said, fiddling constantly with his mobile phone. "I'm not sure we can raise prices again. We've already done it a few times since last year and most customers are not happy."

His 14-year-old company lost money last year on sales of 120 million baht (HK$31.52 million) when the baht rose 14 percent against the dollar, the most of any Asian currency.

This year, his prices were based on 36 baht to the dollar. The currency is now trading at 33.8, and touched 33.12 in July.

"It would be better to fold than make another big loss," he said.

Naris has asked his staff - all of them locals who have worked at the factory for years - to take a cut from the 150 baht they earn each day to help keep the business afloat.

Others, however, are deciding that enough is enough, and closing.

This week, Union Footwear said it would shut, with the loss of 2,300 jobs, after three years of losses it blamed in part on the baht's 17 percent rise against the dollar since early 2006.

Last month's closure of a garment factory employing 5,000 near Bangkok sent shockwaves through the army- appointed government, which imposed capital controls in December to try to stem the baht's advance, to little avail.

Economic ministers and central bank officials are holding almost daily baht crisis meetings, but many analysts say they are wasting their time, given the structure of the economy and its ever-expanding trade surplus.

Foreign cash flooding into the stock market - a net US$3.6 billion (HK$28.08 billion) so far this year - is adding to the pressure on the baht, the third-strongest Asian currency this year behind the Indian rupee and the Philippine peso, despite the controls.

In response, the Bank of Thailand has relaxed rules on foreign currency holdings to try to stop exporters such as Naris selling their dollars, and has started to encourage more Thais to invest abroad.

Larger companies are mitigating their baht exposure by buying hedging contracts or - a more accessible option to the likes of Naris - switching export prices into euros, whose exchange rate against the baht has hardly changed this year.

"We have no currency risk this year as we have full-year hedging," Anusorn Muttaraid, a director of Delta Electronics, Thailand's largest listed electronics firm, said. The company posted a foreign exchange loss last year.

Despite hedging, some of Thailand's biggest exporters are up against it.

"It's tough," said Thiraphong Chansiri, president of Asian tuna giant Thai Union Frozen Products (TUF).

TUF, the company behind the US "Chicken of the Sea" tuna brand, recorded a first-quarter sales increase of 3 percent in dollar terms but a 7 percent decline when changed into baht.

Most economists believe export growth will fall back this year to about 12 percent from 17 percent last year.

"We know business is not good," said 45-year-old Sombat Boonsong, who has worked at Naris' factory for 10 years. "But what can we do?" he added with a sad smile.