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Thailand Splits With China, Brazil on Fed Outlook

Sunday, 07 November 2010 03:27 PM

Thailand split with emerging-market nations from China to Brazil over the outlook of the Federal Reserve’s plan to inject extra liquidity into the U.S. economy, saying the strategy should be given time to work.

“Let’s see how that pans out,” Finance Minister Korn Chatikavanij said in an interview with Bloomberg Television ahead of an Asia-Pacific Economic Cooperation forum meeting in Kyoto, Japan. “If the quantitative easing does result in economic recovery in the U.S., result in an increase in the level of consumption, I think that would be good news for the global economy as a whole.”

The reaction to the Fed’s Nov. 3 announcement to buy $600 billion of Treasuries contrasts with that of other nations that say the proposal will result in depreciating the dollar and causing asset-price pressures outside the U.S. Korn also said his nation must accept that its currency must appreciate given its relative economic strength.

“The reality is we need to adjust to a stronger currency,” said Korn, 46, who worked for JPMorgan Chase & Co. before entering politics and studied at Oxford University. At the same time, he said “we are keeping a close eye on the situation to see whether any measures are needed in order to prevent excessive volatility as a result of excessive speculation. And I am willing to take what every necessary action that may be required.”

Korn separately said that while U.S. Treasury Secretary Timothy F. Geithner’s push to discuss global imbalances in trade and investment flows is a “constructive approach,” Southeast Asian nations oppose setting specific targets.

Korn and other Southeast Asian officials met with Geithner today during the gathering of APEC finance ministers, which precedes a summit of leaders of the 21-member group in Yokohama Nov. 13-14.

“What we are concerned about is a rise in trade protectionism as an attempt to correct the current-account imbalances,” Korn said in the interview scheduled to air Nov. 8. Setting “the current account as a target may lead to use of the wrong tool in order to achieve that target.”

Korn said the Association of Southeast Asian Nations countries agreed to voice their concerns to Geithner when they met today and Vietnam, which represents the 10-member bloc this year, will also “put forward” the issue at the Group of 20 summit in Seoul next week.

Geithner and his counterparts agreed that U.S. growth is central to the global economy, the Treasury Department said in a statement released in Kyoto. The U.S. also said the ASEAN ministers were supportive of the pledge by G-20 finance ministers to refrain from competitive currency weakening and rein in big trade gaps.

Geithner and the Asian ministers “discussed the need for multilateral cooperation in achieving strong and more balanced global growth, including support for efforts at the G-20, to ensure external stability and limit excessive current account imbalances, with flexibility to respect individual country circumstances,” the Treasury statement said.

After G-20 finance ministers last month agreed to refrain from “competitive devaluations” of their currencies, global policy makers have clashed over a suggestion from Geithner that nations keep current-account deficits or surpluses at less than 4 percent of gross domestic product. China, Brazil and Germany are also among those that have faulted the Fed’s stimulus this week.

“Many countries are worried about the impact of the policy on their economies,” Vice Foreign Minister Cui Tiankai said at a press briefing in Beijing yesterday. “It would be appropriate for someone to step forward and give us an explanation, otherwise international confidence in the recovery and growth of the global economy might be hurt.”

German Finance Minister Wolfgang Schaeuble said yesterday in Berlin that the Fed’s move was “clueless” and wouldn’t revive growth. Brazil’s central bank president, Henrique Meirelles, said “excess liquidity” in the U.S. economy is creating “risks for everyone.”

Korn said “we also need to see how the market reacts in the medium term to that particular policy and how that impacts upon our exchange rate and volatility, and then we will make the decision” over whether to act. Korn reiterated that the region’s central banks are in touch and prepared to take steps if needed to address speculation.

“The currency issue probably will be discussed at the APEC level as well,” Korn said. “It is an issue of concern for Thailand and also for the Asean economy given that we are an open economy. We depend on exports as an economic driver. We have open capital flows. By large, it’s an issue that we want to see some resolution on at least between the major economies.”

The MSCI World Index of stocks has climbed 2.5 percent since the Fed’s decision, while the dollar closed little changed against the euro yesterday compared with its Nov. 2 close. The dollar rallied yesterday after a U.S. government report showed employers hired 151,000 workers in October, more than forecast, in a sign of rising optimism about the economic outlook.

The baht is the best-performing currency this year in Asia outside Japan, rising 12 percent versus the greenback, as overseas investors bought $1.8 billion more of local equities than they sold during the period, exchange data show.

The baht rose for a fifth straight day, appreciating 0.1 percent to close at 29.67 per dollar in Bangkok Friday after touching 29.61, the strongest level since July 1997, according to data compiled by Bloomberg.

Thailand last month scrapped a tax exemption for foreign investors in domestic bonds to slow capital inflows that have pushed the currency to a 13-year high.

The central bank on Oct. 28 raised its economic growth forecast this year to as much as 8 percent, the fastest pace in 15 years, and Moody’s Investors Service raised the nation’s credit rating outlook to stable from negative, citing the strength of the recovery.

The baht’s strength is expected to be a “drag” on GDP growth of as much as one percentage point, Korn said. Economic growth next year is expected to slow to between 4.5 percent and 5 percent because of the high base for comparison and a moderation in exports resulting from a stronger exchange rate, according to Korn.

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Thailand split with emerging-market nations from China to Brazil over the outlook of the Federal Reserve s plan to inject extra liquidity into the U.S. economy, saying the strategy should be given time to work. Let s see how that pans out, Finance Minister Korn...
Sunday, 07 November 2010 03:27 PM
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