{\rtf1\ansi\ansicpg874\deff0\deflang1054{\fonttbl{\f0\froman\fcharset0 Times New Roman;}{\f1\fswiss\fcharset0 Arial;}} {\*\generator Msftedit 5.41.15.1503;}\viewkind4\uc1\pard\sb100\sa100\lang1033\b\f0\fs28 New challenges seen as dollar continues to fall \b0\par \b\i\fs24 Competitiveness dealt a heavy blow \b0\i0\fs28\par \fs20 Bangkok Post, 26.2.2004\b\par Parista Yuthamanop \b0\fs28\par \fs20 With the US dollar still on a downward path due to structural economic problems in the United States, policymakers will increasingly face challenges on how to boost the country's competitiveness to ensure sustainable long-term growth.\line\line Since the 1997 economic crisis, Thailand has relied on exports and the trade surplus as the main engine for growth.\line\line While economists remain bullish on prospects for 2004 _ the Finance Ministry yesterday revised upwards its growth targets to 7.7% to 8.1% for the year _ the challenges for policymakers in maintaining currency stability are only expected to increase in the future.\line\line The Bank of Thailand has been actively intervening in the foreign exchange markets since the beginning of the year, with the objective of maintaining broad stability in the baht. The result has led to an accumulation of foreign reserves, even as foreign loans have fallen.\line\line As of Feb 13, foreign reserves totalled $42.9 billion, with another $7.8 billion in net forward obligations, a clear signal of the central bank's intervention in the markets.\line\line In contrast, reserves totalled $42.1 billion and forward obligations $5.2 billion as of the end of 2003.\line\line Active purchases of US dollars in the market by the central bank has helped increase liquidity in the domestic market, with M3, a broad indicator of money in the economy, rising to 6.73 trillion baht as of December, up 5.2% from 2002. To help absorb excess liquidity, the central bank has periodically issued bonds since the beginning of 2003.\line\line Even so, the country's trade competitiveness has fallen due to the stronger baht. According to the central bank, the real effective exchange rate was 82.35 in November, compared with 79.53 the previous year.\line\line One economist said the central bank would face even greater challenges in 2004, given the uncertain outlook for the US and Thailand's own robust growth forecast, helping draw capital inflows.\line\line ''The US dollar remains unstable, and there is little certainty on the US economic outlook and interest rates,'' he said.\line\line Continued intervention to stabilise the baht is possible, although ongoing sterilisation through bond issues could increase the financial burden on the central bank once global interest rates turn upwards.\line\line One additional possibility is tighter controls on capital flows, although regulators would be cautious about such a step given the negative reaction expected by the markets. Still, most market analysts expect some measures to be taken if short-term speculation from foreign funds increased.\line\line Teerana Bhongmakapat, an economist at Chulalongkorn University, noted that currency intervention to help maintain a weak baht would only be successful for so long.\line\line The longer-term need is to deal with the country's continuing structural and fundamental problems on how to boost the competitiveness of the export and manufacturing sectors, he said.\fs28\par \pard\f1\fs20\par }