Apisak sees signs of capital flight end

Outflows’ bright side includes export hike

Thailands capital flight shows signs of ending, says Finance Minister Apisak Tantivorawong, reiterating that the country’s high foreign reserves provide a cushion against the sell-off by foreign investors.

The capital outflows helped weaken the baht, he said, and the local currency’s retreat is a boon for exports, particularly from the farm sector.

The overall economy has not been affected by fund outflows because of its massive foreign reserves, Mr Apisak said.

Capital outflows were spotted in Thai shares and bonds in recent months, then accelerated as investors fretted over the US Federal Reserve’s more hawkish stance on monetary policy by signalling two more rate hikes this year.

The European Central Bank also plans to end its bond purchases by year-end, while tit-for-tat trade tariffs between the US and China have begun.

Foreign investors cashed out nearly 200 billion baht from the Thai stock market this year. They sold a net of 34.3 billion baht in Thai bonds during the April-to-June quarter but were also net buyers of 4.4 billion in the first half.

According to Bank of Thailand data, foreign reserves amounted to US$207.3 billion (6.93 trillion baht) as of July 6, up from $206.8 billion as of June 29 but down from $209.7 billion a week before.

The baht, which was the second-bestperforming currency in Asia last year, fell to its lowest point in more than nine months at 33.38 to the dollar yesterday. The baht has dropped 2.4% this year.

Mr Apisak said there was no need to rush an interest rate hike, as inflation has just returned to the Bank of Thailand’s target range.

“Monetary policy is the Bank of Thailand’s duty,” he said. “The inflation target is set in a range of 1-4%, but it has only been above 1% for a short period, like a person managing to float just above the surface of the water. It was below 1% for three years, and economists have proposed rate normalisation, which is like pouring water to submerge the person. We had been sinking for a long time, so the central bank needs to consider whether we are really above the surface now. The range is a guideline, not a rule.”

Mr Apisak said the lingering trade spat would not affect the Thai economy.

The World Bank recently estimated that 0.5 percentage points would be shaved off global GDP if the trade rift escalated into a trade war.

The government will still pursue fiscal expansion this half to drive the country’s economic growth, Mr Apisak said, adding that the Thai economy is returning to its growth potential and embracing the digital economy shift will beef up the country’s competitiveness.

A digitally driven economy can help push the country’s growth potential above 4-5%, Mr Apisak said.

The government has also splashed out on infrastructure development in the Eastern Economic Corridor, including upgrading U-tapao into a commercial airport and aviation hub, he said.

Mr Apisak said accelerating state investment will not affect fiscal stability, adding that the ratio of public debt to GDP is expected to peak at 48% in the next four years, well below the 60% ceiling. The country’s public debt stood at 40.4% of GDP in June, he said.

The government is targeted to run a balanced budget for the next 11 years, assuming that GDP expands more than 4% annually, Mr Apisak said.

Another economic development target is escaping from the middle-income trap and achieving developed status, he said.

The NESDB forecasts that it will take 18 years for Thailand to become a highincome country if the economy expands at 4% annually and 10 years if that growth is 5%.

Farm sector reform aimed at boosting the income of 30 million farmers can help the country escape the trap, Mr Apisak said.

A proposal to defer debt payment for 2-3 years for farmers who owe up to 300,000 baht to the Bank for Agriculture and Agricultural Cooperatives will go before the cabinet for approval this month, he said.

Some 2-3 million farmers qualify for the scheme, with the interest rate on their debt being trimmed by 2-3%, Mr Apisak said.