Told You So: Thai Exports Lost To Neighbors

Back in March, I wrote a post where I predicted that if the Thai Baht continued to strenghten (i.e. drop) against the dollar, it would cause exports in Thailand to drop precipitously due to the high price of Thai goods in comparison with its regional neighbors.

Back then, I wrote:

That, of course brings me to the question: What do I predict is going to happen in the long run?

No other southeast Asian currencies have been following the baht's lead: They are all weak against the Thai baht as well. Therefore Thailand can't take the other Asian economies for a ride. Only the Thai export prices are skyrocketing. This leaves foreign importers of Southeast Asian goods with the choice of going to other countries in Southeast Asia to make their purchases, which leaves Thailand markets vulnerable.

Most foreign importers have a fair amount of faith and consistency in where they obtain their product, and will bear some price fluctuation at the expense of having a consistent and reliable supplier, but given enough incentive (such as they have now), they can and will go looking in other places such as China, Indonesia and Malaysia (and even emerging Viet Nam) for better prices on the things they buy. Thai industries will begin losing their foreign customers to nearby countries with more equitable exchange rates and lower labor costs.

The first Thai industry to lose customers will be the farming sector, second will be the low-end manufactured goods sector, third will be the minerals and natural resources sector, fourth will be the service sector, and fifth and finally (should the exchange rate remain poor for long enough) will be the high-end manufactured goods sector.

[emphasis newly-added]

Of course, someone had to chime in and call what I wrote "uninformed crap":

It's not the end of the world. The sky is not falling. It's just uninformed crap like this that makes people think so.

So, what is now happening with the Thai economy?

Exactly what my "uninformed crap" said would happen.

Bangkok - Thirty-three Thai factories went bankrupt during the first half of 2007, resulting in 9,496 labourers being laid off, media reports said Friday. The Labour Ministry has put another 196 businesses "under watch" for immediate closure in the coming months, The Nation newspaper said.

Among the largest factories to close their doors during the first six months of the year was Silp South East Asia Import Export, a sportswear manufacturer that has been forced to lay off more than 4,000 labourers.

Silp South East Asia's management claimed that it could no longer compete in the garment export sector with countries such as Vietnam and China.

Although Thailand's exports grew 18 per cent in value during the first half of this year, the increases were primarily in higher-tech sectors such as automotive, electronics and electrical appliances.

Lower-tech, labour-intensive industries such as textiles and shoes have lost competitiveness because of a 19-per-cent appreciation of the baht currency against the dollar since January 2006 and higher labour costs compared with rivals such as Vietnam.

[emphasis mine]

Sometimes I have to wait a while, but no matter how long the wait, it's always cool to have my "uninformed crap" proven to be right.

Anyway, I see the baht is slowly creeping upwards against the dollar... but a 2-day 0.5-baht upward creep during a 2-year consistent drop is hardly a trend. It's primarily the worldwide credit industry feeling jittery because of the American housing market. (I wonder if we'll see another version of the 1997 Souteast Asian crash when all of the banks and credit lendors twitch?) Consumer confidence in Thailand is certainly predicting doom and gloom.