“Targeting” the Poor in Thailand

“Targeting” the Poor in Thailand – truth-out.org, September 16, 2012
…The problem is that this has not worked. With the interest rate set at 3 per cent for some time now, Thailand like many other economies has been the recipient of large capital flows from the global system. This has had three consequences. The first is that the Thai baht has appreciated over time.
At around 30 baht to the dollar currently, this appreciation is having adverse effects on the competitiveness of domestic producers. More so because trade is an important target of Thai production, and currency appreciation makes Thai exports more expensive in dollar terms and imports cheaper when valued in domestic currency.
Second, an appreciating currency only encourages more capital inflows, since there are gains to be made from the strong baht. Returns made on baht investments yield more in dollar terms if appreciation has occurred during the life of the investment.
Finally, since the central bank is forced to respond to this situation as part of its “flexible” inflation targeting policy, it is required to buy up foreign exchange to stall excessive baht appreciation. This increase in the assets of the central bank, and therefore in its liabilities, implies some loss of control over money supply, which is what the policy regime is supposed to be avoiding in any case…

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