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Asia and Pacific > Thailand

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Cover Departmental Papers
Navigating External Shocks in Southeast Asia's Emerging Markets: Key Lessons and Challenges in Applying the IMF’s Integrated Policy Framework
Corinne C Delechat
,
Umang Rawat
, and
Ara Stepanyan
As relatively small open economies, South-East Asian emerging markets (Indonesia, Malaysia, Philippines and Thailand or ASEAN-4) are highly susceptible to external shocks—both financial and real—that could induce large capital flows and exchange rate volatility that could lead to foreign exchange market dysfunction. With the exception of Bank Negara Malaysia, ASEAN-4 central banks mostly have flexible inflation-targeting frameworks for monetary policy implementation. Their main policy objectives include medium-term price stability, sustainable economic growth, and financial stability. Central Banks in ASEAN-4 economies have been early pilots in the operationalization of the IMF’s Integrated Policy Framework (IPF) in 2022-23, given their experience in using multiple policy tools besides the monetary policy rate, including macroprudential measures, foreign exchange intervention (FXI), and capital flow management measures, to achieve their multiple objectives. They have welcomed the IPF as a systematic, frictions-based approach to analyze the use of these multiple tools to manage trade-offs across policy objectives. This paper takes stock of the experience from these pilots, both from the perspective of country authorities and of IMF country teams. It aims at distilling key lessons, which could be used to inform broader IPF operationalization. The IPF conceptual framework and a related quantitative model were used to assess policy trade-offs in ASEAN-4 in the event of adverse external shocks. These applications reaffirmed the importance of using monetary policy to address persistent inflationary pressures stemming from real shocks and allowing the exchange rate to act as a shock absorber. However, a complementary use of FXI could improve trade-offs between price, financial, and output stability when economies are faced with large and financial shocks that result in abrupt spikes in uncovered interest rate parity premia resulting in inefficiently tight financial conditions that could hurt growth or risking to de-anchor inflation expectations. The IPF pilots also highlighted some challenges faced when operationalizing IPF principles, notably regarding the assessment of frictions and shocks that might justify the use of FXI. In particular, country teams at times lacked sufficient information to adequately assess the extent of frictions. Moreover, the time-varying nature of IPF frictions and the non-linear effects of shocks make it difficult to assess situations when benefits of a complementary use of FXI would overweigh its costs.
Keywords:
ASEAN; foreign- exchange intervention; Inflation targeting; Integrated policy framework; capital flows; IPF pilot; market dysfunction; IMF country team; IPF model; Policy mix; IMF seminar participant; Currency markets; Exchange rates; Inflation; Southeast Asia; Global
Cover IMF Working Papers
A Multi-Currency Exchange and Contracting Platform
Mr. Tobias Adrian
,
Federico Grinberg
,
Mr. Tommaso Mancini Griffoli
,
Robert M. Townsend
, and
Nicolas Zhang
Cross-border payments can be slow, expensive, and risky. They are intermediated by counterparties in different jurisdictions which rely on costly trusted relationships to offset the lack of a common settlement asset as well as common rules and governance. In this paper, we present a vision for a multilateral platform that could improve cross-border payments, as well as related foreign exchange transactions, risk sharing, and more generally, financial contracting. The approach is to leverage technological innovations for public policy objectives. A common ledger, smart contracts, and encryption offer significant gains to market efficiency, completeness, and access, as well as to transparency, transaction and compliance costs, and safety. This paper is a first step aiming to stimulate further work in this space.
Keywords:
Cross-border payments; multilateral platforms; digital money; CBDC; programmability; encryption; exchange-market illiquidity; risk sharing; market design; hedging risk; cross-border payment; Smart contracts; Currencies; Currency markets; Financial statements; Global
Cover IMF Working Papers
We Are All in the Same Boat: Cross-Border Spillovers of Climate Risk through International Trade and Supply Chain
Are assets in a landlocked country subject to sea-level rise risk? In this paper, we study the cross-border spillovers of physical climate risks through international trade and supply chain linkages. As we base our findings on historical data between 1970 and 2018, we observe that globalization increased the similarity of countries’ global climate risk exposures. Exposures to foreign climatic disasters in major trade partner countries (both upstream and downstream) lower the home-country stock market valuation for the aggregate market and for the tradable sectors. We also find that exposures to foreign long-term climate change risks reduce the asset price valuations of the tradable sectors at home. Findings in this paper suggest that climate adaptation efforts in a country can have positive externalities on other countries’ macrofinancial performance and stability through international trade.
Keywords:
climate risk; financial spillover; supply chain; financial stability; WP; risk exposure; disaster damage; spillover index; exposure measure; assets ratio; expected return; Climate change; Stock markets; Foreign currency exposure; Financial sector; Natural disasters; Global
Cover IMF Staff Country Reports
Malaysia: Financial Sector Assessment Program Banking System Spillovers-Technical Note
International Monetary Fund. Monetary and Capital Markets Department
This Technical Note focuses on banking system spillovers of Malaysia. The note examines the presence of foreign banks and the potential for problems in other jurisdictions to spillover to Malaysia and the overseas operations of Malaysian banks, which make their performance and solvency more exposed to economic and political developments abroad. A key facet of the current crisis is serious problems in advanced economy banks, suggesting a role for spillovers from their claims on Malaysia. Notwithstanding the Asian Financial Crisis, foreign claims of BIS-reporting banks on Malaysia have generally been on an increasing trend since the early 1990s.
Keywords:
ISCR; CR; bank; bank claim; Malaysia; Eurozone bank; HSBC Holdings; Malaysian bank; U.K. bank; foreign bank; bank share; Singaporean bank; exposures to Malaysia; bank exposure; bank expansion; Foreign banks; Foreign currency exposure; Commercial banks; Bank credit; Asia and Pacific; Europe; East Asia; Global
Cover IMF Working Papers
Exchange Rate Fluctuations and International Portfolio Rebalancing in Thailand
Mr. Jacob Gyntelberg
,
Mr. Subhanij Tientip
, and
Mr. Mico Loretan
We present empirical evidence that the Thai baht’s value is driven in part by investors’ cross-border equity portfolio rebalancing decisions. Our results are based on comprehensive datasets of FX and stock market transactions undertaken by nonresident investors in Thailand in 2005 and 2006. Higher returns in the stock market relative to a reference stock market are associated with net sales of equities by these investors and a depreciation of the Thai baht. Net purchases of Thai equities lead to an appreciation of the Thai baht. Foreign investors do not appear to hedge the foreign exchange risk related to their stock market positions.
Keywords:
WP; investor; baht; exchange rate; dollar; Thailand; Foreign exchange market; capital flows; equity market; portfolio rebalancing; Thai baht; spot exchange rate; order flow; FX market; nonresident investor; Currency markets; Stock markets; Exchange rates; Currency swaps; Global
Cover IMF Working Papers
Private Information, Capital Flows, and Exchange Rates
Mr. Jacob Gyntelberg
,
Mr. Subhanij Tientip
, and
Mr. Mico Loretan
We demonstrate empirically that not all capital flows influence exchange rates equally: Capital flows induced by foreign investors’ stock market transactions have both an economically significant and a permanent impact on exchange rates, whereas capital flows induced by foreign investors’ transactions in government bond markets do not. We relate these differences in the price impact of capital flows to differences in the amounts of private information conveyed by these flows. Our empirical findings are based on novel, daily-frequency datasets on prices and quantities of all transactions of foreign investors in the stock, bond, and onshore FX markets of Thailand.
Keywords:
WP; FX order flow; FX transaction; FX dealer; Thai baht; bond order flow; bond order flow series; component FX order flow; customer order flow; FX order flow shock; FX risk; FX swap order flow; swap transaction; Order flow; private information; exchange rate models; market microstructure; exchange rate fluctuation; responses to FX order flow shock; FX order flow regression; flow series; Citibank customer order flow; Stock markets; Currency markets; Securities markets; Exchange rates; Global
Cover IMF Staff Country Reports
Republic of Kazakhstan: Selected Issues
International Monetary Fund
In recent years, the IMF has released a growing number of reports and other documents covering economic and financial developments and trends in member countries. Each report, prepared by a staff team after discussions with government officials, is published at the option of the member country.
Keywords:
ISCR; CR; bank; asset; loan; market; capital
Cover IMF Staff Country Reports
Republic of Kazakhstan: Selected Issues
International Monetary Fund
Kazakhstani banks continue to suffer from a high and rising stock of nonperforming loans. A centralized approach to asset resolution is warranted, and could be based on a reinvigorated Distressed Asset Fund. A robust and transparent public financial management system should be an integral part of any effective fiscal framework. Deeper and sophisticated domestic financial markets will help decline in dollarization and the associated risks. A sound medium-term fiscal framework, supportive monetary and exchange rate policies, and overall financial sector reform is required.
Keywords:
ISCR; CR; bank; asset; loan; market; capital; Kazakhstani bank; market infrastructure; bank assets; anti-crisis spending; expenditure rule; consolidation plan; terms of trade; Fiscal rules; Nonperforming loans; Distressed assets; Fiscal stance; Currency markets; Global; derivatives market; interest rate; I. resolving Nonperforming loan; financial market development; NPL resolution; development in Kazakhstan; E. strengthening regulation
Cover IMF Working Papers
Global Volatility and Forex Returns in East Asia
Sanjay Kalra
During 2001-07, increases in mature market volatility were associated with declines in forex returns for East Asian countries, consistent with an overall "flight to safety" effect. Estimates from GARCH models suggest that a 5 percentage point increase in mature market equity volatility generated an exchange rate depreciation of up to ½ percent. This sensitivity rose during the latter period in the sample, suggesting greater integration of Asian financial markets with global markets. Unconditional standard deviations estimated from these models also provide operational measures of "long-term" and "excess" volatility in forex markets. Long-run forex volatility declined as Asian economies settled down with generally stronger fundamentals in the post-crisis period to more flexible regimes along with a generally lower level of mature market volatility.
Keywords:
WP; VDAX indices
Cover IMF Staff Country Reports
Thailand: Selected Issues
International Monetary Fund
To estimate the New Keynesian model, we use four key macroeconomic series for Thailand. The priors are chosen to reflect general considerations of the appropriate model dynamics and our judgment about the Thai economy. The model is solved initially so that the baseline forecast replicates staff baseline projections over the medium term. We analyze two main risk scenarios, and estimate that the output in Thailand may decline by up to 0.9 percent relative to the baseline. However, the adverse impact on Thai output is likely to be smaller than suggested above.
Keywords:
ISCR; CR; market; Phillips curve; reaction function; turnover data; U.S. dollar transaction; upper bound; market turnover; demand shock; return volatility; Currency markets; Exchange rates; Output gap; Currencies; Global; Asia and Pacific