Why the BOT doesn’t understand the current situation and why it’s scary

… Or I should write “doesn’t want to understand”.

Let’s prove it. Consider this :

Permanent secretary for finance Suparut Kawutul said there had been a limited impact from the US financial crisis on the local banking system, equities market and insurance sector.

Mrs Tarisa said the central bank could introduce a rescue package to inject liquidity and tackle bad assets in the Thai banking system if necessary.

“The present developments in other countries are a good example. The central bank might introduce a rescue package if necessary. We are ready if there is a need to increase liquidity in the system.”

Regulators took pains to point out that local institutions’ exposure to overseas assets was limited. The banking system currently has $3.6 billion (122 billion baht) worth of external credit compared with eight trillion baht worth of total liabilities. (Bangkok Post)

If we put on the side the stupid and classic “don’t worry attitude”… the rest sounds good.

It sounds reasonable. And even perfectly logic :assets in USA are in trouble, thai banks don’t own a lot of those, therefore Thailand is protected, insulated from the financial crisis.

But there is a flaw. A big one.

When 60% of your economy is based on exports, and when your biggest customers step into recession… well… you’re nailed.

USA, Europe (Ireland, Denmark) , Japan… and other countries (Singapore, New Zeland). It has started. And the pace is increasing.

Nailed on the wall, with no recourse. You can cry, protest, hit the air with your small fists, offer free water and tax free diesel for 6 months, lower interest rates to zero, light candles and pray Buddha, you are nailed. You go into recession too, eventhough your “local institutions have a limited exposures to overseas assets“.

Like Mike Shedlock wrote 2 years ago (this guy is a genius, he forecasted everything, along with Roubini, check his blog), we don’t have a liquidity problem. We have a freaking insolvency problem.

The poor Tarisa and the BOT are powerless, condamned to mimic what the FED is saying.

Like the clowns at the government, she will assist to the landing of the black swan : the recession in Thailand (or at least a growth zero).

And there is little she can do about it.

And I would like to add (this is the motto of my blog) : politics and economy are linked.

You can be sure that the political crisis in the country is going to accentuate the problem.

The hyenas will continue to fight for the royal succession… they won’t have time to think, properly, about the economic crisis.

2 Responses to “Why the BOT doesn’t understand the current situation and why it’s scary”

  1. 1 fall 28 September 2008 at 8:57 am

    Admitting to the existence of problem is not part of Thai culture. Especially if you sit in a position to prevent it and dont have a clue…

  2. 2 Bedwyr 29 September 2008 at 2:00 pm

    Fall, you got it in one.


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Thailand Crisis

Coup, Economic slowdown, Terror In the South... The situation is worsening in Thailand. Bumpy road like often before.

But this time, it's different.

The key to understand the present turmoil is the inevitable... succession of King Bhumibol.

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