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IMF: Weaker Baht May Be Needed To Cut Thai Trade Gap
10-27-05
WASHINGTON -(Dow Jones)- Thailand's currency may have to weaken further to limit trade deficits swollen by inflated energy prices and weaker demand among trading partners , the International Monetary Fund said Thursday.
"A sharper-than-expected slowdown in partner country demand and additional increases in oil prices could delay the improvement in the current account, and the economic recovery could be slower than anticipated," the IMF said in its annual review of Thailand's economy.
The IMF "emphasized that exchange rate flexibility could play an important role in absorbing the current imbalances, and noted that the baht has been weakening with the deterioration of the external current account."
The Bank of Thailand, in contrast to some neighboring Asian countries, says it limits currency intervention to smoothing excessive volatility.
The IMF lauded the Thai central bank for its policy of gradually raising interest rates, even as growth slowed, to prevent higher interest rates from pushing up consumer prices.
The IMF estimates Thailand's economy will expand 3.5% this year, following 6.1% growth in 2004. Consumer price inflation is seen averaging 4.2% for the year, up from 2.7% in 2004.
The IMF said Thailand is in a strong position to confront adverse shocks, thanks to "substantial" reductions in public and foreign debt achieved in recent years.
Nonetheless, banking and corporate reforms have a ways to go, the Fund said.
"Despite substantial progress, (non-performing loans) in the banking sector are still high," the IMF said.
The Fund urged Thailand to accelerate legal reforms to improve both private and public governance and to enhance the investment climate.
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