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Cablegate: China Revalues; Thai Business Shrugs

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS BANGKOK 004780

SIPDIS

SENSITIVE

TREASURY FOR OASIA
COMMERCE FOR 4430/EAP/MAC/OKSA

E.O. 12958: N/A
TAGS: EFIN ETRD ECON CH TH
SUBJECT: CHINA REVALUES; THAI BUSINESS SHRUGS

REF: 04 BANGKOK 8292

1.(U) In response to the July 21 revaluation of the Chinese
Yuan, and following a July 22 Thai bank holiday, the Thai
Baht appreciated against the US$ by about 1.6 percent, from
an average interday rate of 42.09/US$ on July 20 to
41.38/US$ on July 26. Similarly the Stock Exchange of
Thailand (SET) index closed at 650.04 on July 20 and gained
9.6 points (1.5 percent) by the close on July 25.

2. (SBU) On July 26 both the Baht and SET weakened in the
wake of profit taking and more careful consideration of the
near-term effects of the Chinese move. We have spoken with
more than forty companies, bankers and academics and while
most acknowledge that the revaluation is a step in the right
direction, they believe it is too soon to tell how much the
Yuan will actually be allowed to appreciate and over what
time frame. One Thai banker argued that the Chinese move is
simply "an effort to get the U.S. off their backs" and that
"nothing practical will change for some time." Another said
that he expects no further Yuan appreciation for "at least
six months" while the Chinese consider the effects of the
initial action. All believe that a 2.1 percent appreciation,
netting to about 1 percent when considering the appreciation
of regional currencies against the US$, is far too small to
have any impact on Thai trade. None of the companies with
whom we spoke plan any changes or expect any particular
impact on their business. The only strongly positive reaction
was from a Thai Airways official who voiced hope that as the
Yuan continues to strengthen, more Chinese tourists will
visit Thailand and company operations in China will grow more
profitable due to positive currency translation.

3. (SBU) Both private and Bank of Thailand analysts agree
that the timing and method of the revaluation was designed to
minimize the effect of the currency move. They point to the
action taking place in mid-summer, when currency trading is
slower, at a period when the US$ was appreciating and the
outlook was for continued Federal Reserve interest rate
increases and positive US economic growth; all factors
supporting continued strength in the greenback. Relative to
the Baht, most local currency traders argue that the
revaluation broke the downward momentum of the Baht but that,
unless there is further Yuan appreciation in the next month
or two, the Baht's movements will again be determined largely
by Thai macroeconomic conditions. In any case, none felt that
the Baht would soon break the Bt40/US$ level last seen in May.

4. (SBU) On the other hand, RTG officials are using the
revaluation of the Chinese Yuan to talk up prospects for the
Thai economy in a bid to counteract increasing negative
business and consumer sentiment over the near term economic
outlook. Following a July 22 meeting of the Ministers of
Finance and Commerce and the Governor of the Bank of
Thailand, Finance Minister Somkid told the press "the Baht
has strengthened less than the Yuan, so it will benefit Thai
exports." Central Bank Governor Pridyathorn said the
revaluation will make it "easier to implement our monetary
policy since the Chinese chose a managed float system."
Commerce Minister Thanong noted that the one percent
appreciation of the Baht against the US$ on July 22 was less
than the appreciation of other regional currencies that day
and was therefore a positive indicator for Thai exporters.

5. (SBU) Comment: The general attitude in Thailand's private
sector is that the Yuan needs to appreciate at least another
10 percent before Thai companies realize any advantage
against their Chinese competitors. They believe such
appreciation is unlikely any time soon since they ascribe the
July 21 action to a political rather than an economic
decision by the Chinese authorities and expect that further
Yuan appreciation will again be modest and based more on
politics than economics.
BOYCE

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