Thailand: Removal of capital controls suggests that you remove your capital ASAP!

Thailand: Removal of capital controls suggests that you remove your capital ASAP!: Subscribers know of our skepticism concerning the political and economic health of the Thai Kingdom. We have warned for some time of brewing political tensions for all of Southeast Asia, and our recently-updated Economic Clock for Thailand clearly is pointing to worse times ahead. So we take issue with today's press reports suggesting that people load up on Thailand.

Call this a cat on a hot tin roof: something feels funny. The Economic Time™ looks deceptively fine: we diagnose Thailand to have an excess supply of money and an excess supply of goods, but populist economics policies threaten to worsen the Kingdom's Economic Time to an excess demand for money as well as goods. "Beauty goes skin-deep".

  • Inflation keeps gathering momentum, courtesy of the Bank of Thailand having loosened monetarily since 4Q06. The chickens now are coming home to roost. Worryingly, it is of the "demand-pull" type. However, as discussed next, it cannot be combated.

  • The Central Bank probably will lose its independence with which to fight inflation. PM Samak was in the Bloomberg report (25/2/08) on 4Q07 GDP: on 18th February he said that "...the government will use monetary policy to support economic growth." Well, you won't need a PhD in monetary economics to figure out that the Central Bank's fingers are being amputated. This is not good news for global - or indeed domestic - investors!

  • Domestic demand has to be waning. Lending already is contracting in real terms, while domestic investment and thus the output of the materials with which you build factories and homes remain lethargic.

  • All of these red flags suggest that on a six month view (our time horizon) Thailand's Economic Clock could start pointing to an excess demand for money (as leery banks will be lending even less than they are now, so welcome to a Thai credit crunch) and an excess demand of goods on account of the government ramping-up infrastructure spending and thus employment/wages growth).

  • Caveat emptor!

The just-updated Economic Time™ for Thailand is a mirage: we currently diagnose an excess supply of money and excess supply of goods.

2. However, we cannot caution enough that this Economic Time is morphing into a cat on a hot tin roof:

First, inflation, especially the demand-pull type, is rising;

Secondly, fourth quarter GDP (up 5.8% in real terms over 4Q07) was driven very much by government outlays, and

Finally, we just do not think that global investors are going to flock to a market where populist domestic politics are getting rickety along with those in neighbouring countries.

3. As economists, we note with particular concern that the new PM, Samak, wants monetary policy to be growth-friendly. This concerns us: Thailand’s inflation needs to be controlled by the Central Bank. But he well could disallow this.

4. We suggest which sectors to sell - and even have a couple of "buys", but...5.

5.Caveat emptor!