From time to time we find ourself wanting to write letters to other organisations or nation states or people who we think could benefit from free advice. Today, it’s Thailand. You might have seen that Thailand recently imposed temporary and disastrous capital controls limiting the amount of money coming into the country. The controls were intended to prevent speculation in Thailand’s currency, the Baht.
Thailand, like many Asian nations, thrives on an export-driven model of economic growth. It sells things to the world and takes the profits and plows them back into new export industries. The model works best when the local currency remains weak relative to the currencies of trading partners. That way, the local firm incurs its cost in a relatively weak currency, but its profits in a relatively strong currency.
The problem is, when your economy is humming along and speculators see that your currency is relatively undervalued, they rush into buy it, hoping to lock in profits as the currency appreciates (which it normally would do, absent government controls.)
Politicians, in addition to being devoid of commons ensse, are the traditional enemies of the free market. And Thailand’s newly installed unelected coup leaders/politicians decided that too much foreign money rushing into the stock market was making the currency too strong. So they did the military equivalent of setting up a roadblock. They instituted capital controls, effectively blocking the free flow of global money to and from Thailand. Which prompts us to write this letter:
Dear Thailand,
“We know you’ve had a rough week. And we know you’re probably receiving a lot of patronizing advice right now from really snotty but well-dressed Western bankers and brokers about how a well-behaved financial markets should work from . We sympathize with you. And we thought we’d offer you some insight, for what it’s worth [NB: our insights are free, but that doesn’t mean they have no value. Air is free too, but it’s pretty valuable, isn’t it?]
“Here is the thing about capital: it is a moody wench. It likes to be treated well. Being a nice tourist destination is not enough.
“Sure Thailand, you have beautiful beaches and lovely weather. And frankly, we think you have one of the most beautiful cultures in the world. Except for those agitators in the South, you are a peaceful people. You possess stunning physical beauty and are almost always friendly to us clumsy, lumbering, pasty-white, sex-starved, beer-guzzling Westerners.
“But money is not a man whose needs can be met with the right level of hospitality. She is a demanding taskmaster who insists one thing above all else: a superior return. If money isn’t allowed to spread out, go where she wants, and multiply herself quickly, she will pack her bags and leave faster than a wave receding from a quiet coastline.
“It doesn’t seem fair, we know. But if you want money (investment) to feel welcome in your country, you must let her come and go as she pleases. If she knows she can come and go easily, she is more likely to stay, make herself comfortable, and lavish her grateful attention on you. But if you try to boss her around, watch out. She is a harsh and mean-spirited mistress somtimes.
“Good luck Thailand. We hope to come visit you soon. And we hope the global capitalists haven’t bullied you too much. Believe me, we’re not saying they are nice people. Frankly, they are amoral. Yield is all they care about it. But we think knowing this has value. And we hope it will serve you well in your future capital courtship.
Your Friend, The Daily Reckoning Australia
P.S. to get The Daily Reckoning direct to your inbox sign up to our free e-mail newsletter or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.
Related Articles:
- None Found
About the Author
Dan Denning is the author of 2005's best-selling The Bull Hunter (John Wiley & Sons). He began his financial publishing career in 1997 and has covered financial markets form Baltimore, Paris, London and, beginning in 2005 Melbourne. He’s the editor of The Daily Reckoning Australia and the Publisher of Port Phillip Publishing.
Comment by geomark on 23 December 2006:
Fun read. But it's easy to forget that if your market is big enough it can be left alone and free market forces will generally benefit everyone (e.g. U.S., Europe). But a tiny market, like Thailand's, can be obliterated quickly by just a handful of foreign investors. A 16% rise in the value of the baht in just a couple of months threatened to shutter dozens of the largest employers in the country who are primarily exporters. Thousands of people suddenly unemployed in such a small economy means a great deal of suffering for the benefit of a handful of foreign investors. The Thai government's approach was clumsy, for sure. But the need to reduce the volatility of the Thai baht was there.