Thailand’s Unsmiling Post-Flood Flicks

Thai shares continued behind Asian peers as 2011’s last quarter GDP fall at 10 percent was twice the previous period on the after-effects of the worst deluges in half a century. The central bank indicated further rate slashes after a 25 basis point move with the setback, as Asean neighbors also eased modestly. The budget contains $10 billion for new flood controls as auto and computer manufacturers struggle to resume production and extend their presence. Japanese firms, in view of the lowest current account surplus in 15 years and record yen strength, are rethinking locations and have pushed heavily into Vietnam with $2 billion invested last year with bilateral development assistance upgrading infrastructure. After their own natural disaster along with Thailand’s, and with Chinese wages rising, regional diversification has become a priority endorsed by the Economy Ministry especially for energy and commodities but also in financial services. Japan’s banks account for 40 percent of the $85 billion in Bangkok-directed foreign claims by BIS calculations, with less than one-year maturities equal to 10 percent of international reserves. Euro-zone based lenders represent under 10 percent, but have reportedly called in trade lines to raise capital ratios as demanded by supervisors. Malaysia’s reliance is lower with its history of limited liberalization and currency controls, and capital account convertibility for the ringitt remains gradual with the Islamic financial sector receiving preference. It is heading for elections with opposition leader Anwar Ibrahim again acquitted in a personal morals trial for lack of evidence. Prime Minister Najib, who is expected to soon seek a second term, may face an internal as well as outside challenge with a backlash against his intentions to dilute traditional pro-Malay policies in the interests of efficiency and social calm.

In the last polls just prior to the 2008 global crisis, the ruling party that has been in power since independence took a bare majority of the popular vote, and public debt has since mushroomed with consecutive stimulus programs. Foreign buyers have snapped up government securities as the central bank maintains a neutral rate stance. As an oil exporter, rising world prices have offset electronics weakness, and consumption is softer following the introduction of mortgage curbs after household debt topped 75 percent of GDP. UK banks are the largest foreign contingent with activity mostly funded on retail deposits, but export credit there too is under pressure according to the IMF. A minimum wage hike has already been dangled in the pre-election period and the monetary authority could likewise react with loosening as in the Philippines to slumping semiconductors and domestic demand to keep its loyalist charge.