Thailand prescribes flexible currency medicine

Emerging market economies should adopt flexible exchange rate systems to help counter the impact of economic crises, according to the finance of minister of Thailand, which was the first country to be hit by the Asian financial crisis in 1997.

Kittiratt Na-Ranong, who is also deputy prime minister, said a flexible currency regime had been essential to boosting Thai exports in the face of the global downturn.

“ASEAN countries have a very important economic factor well designed for this [liberal] capital regime which is exchange rates,” he told Emerging Markets in an interview on the fringes of the ADB meeting.

“Can you imagine what Thailand would have been without the float of the exchange rate to put ourselves back on our feet with better exports and adequate surpluses to handle sovereign debt?”

He contrasted his country’s experience with that of peripheral eurozone nations, saying the inability of countries such as Greece and Portugal to devalue had limited their ability to respond. “Weaker economies in the eurozone gave up that factor,” he said.

His comments come after China unexpectedly announced last month it was widening the band within which the renminbi can trade against the US dollar from 0.5% a day to 1.0%.

On Thursday Yu Yongding, a leading Chinese economist and former member of the People’s Bank of China’s monetary policy committee, told Emerging Markets Beijing should widen the band to 10%.

However, Kittiratt said he was not advocating that countries in the eurozone should revert to individual currencies. “I am not trying to push for the idea that anyone should step back but there is a strong need to find some other mechanism that would be equally powerful. So far I have not seen it.”

He also gave a veiled hint that Asia’s superpowers of China and Japan could be in a position to provide resources to finance a bailout of weak eurozone economies.

Some commentators have said the size of surpluses in ASEAN +3 countries – which includes China, Japan and South Korea as well as the 10 Southeast Asian nations – means consideration should be given to assisting Europe.

Kittiratt said it was an interesting proposition. “I am a believer in the word balance and when some corner of the world suffers there must be some flow of resources into the area. The question is who would be big enough to do so. If you ask about ASEAN 10 that would too small but ASEAN +3 they are stronger.”

He also contrasted Europe’s woes with that of the US in the early 1980s when the federal fiscal structure help minimize the economic fallout from a nationwide real estate crisis.

“The 50 states share a single federal law and the flow of resources, income and capital is to the centre. The question in Europe is the integration of the whole eurozone can we find ways to improve it similar to the US three decades ago if not we must find something else.”

Kittiratt said the impact of the eurozone crisis on the Thai economy has been limited. “Before the Asian financial crisis Thailand and South East Asia are net importers of financial resources and comes from the West. From 2007 on we have achieved current account and trade surpluses and many look to these economies as a very safe haven.”