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:
“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 Markets and Money Australia