Russian woes may indirectly affect Thailand

Russia's economic troubles may trigger outflows from emerging markets, including Thailand, the Bank of Thailand has warned.

A man walks by a sign advertising currencies of an exchange office in Moscow on Dec 15, 2014. (AP photo)

Outflows usually result in a slump in the stock and property markets, as well in some industrial sectors dependent on foreign funds.

Russia's economy relies heavily on the government sector while its public debt and inflation are high, said central bank spokesperson Jirathep Seniwong na Ayutthaya on Monday.

The resulting fast depreciation of the ruble in recent months have prompted outflows and forced policy interest rate hikes to 17% from 10.5% to stem the exodus of foreign investors, he said.

Sanctions by countries such as the US, as well as plummeting oil prices, have further dealt a blow to the already fragile economy, of which 60% of revenue comes from oil exports.

In any case, the Thai central bank views the situation is unlikely to affect the world economy of which Russia makes up only 2%.

"Rather, Russia's woes will cause outflows from emerging markets. But it's too early to say for certain now as the year is drawing to a close, with thin transaction volumes. We'll have to re-evaluate the situation in January — how investors will geographically re-allocate their investments," Mr Jirathep said.

While the Russia case is exclusive, investors' confidence and financial markets could suffer, he said.

Emerging markets, however, are no strangers to volatile fund flows. Asia markets are relatively not worrisome thanks to their strong fundamentals. The extent of volatilities in currencies and fund flows will hinge on each country's fundamentals, he said.

"The direct impact on Thailand is unlikely to be substantial as bilateral trade is not much — Thai exports to Russia make up only 0.5% of all shipments," Mr Jirathep noted.

"The Russia situation won't directly affect Thailand. Indirect impacts will be in tourism. A weak ruble means fewer Russian tourists to Thailand. As for other sectors, the Bank of Thailand will keep a close watch on them," he said.

In Pattaya, a popular destination for Russian tourists to Thailand, signs of a bubble have started to emerge. The rapidly weakening ruble has boded badly for the property sector there.

Sompob Vanichsenee, managing director of the property developer The Urban Property Co Ltd, said Russian customers started to have problems paying down payments and showed signs of giving up the purchases.

"Russians are normally asked to pay 30-50% of condo prices. But the weak ruble has added to their burden. We try to help them by extending the repayment period to two years and help those seeking to resell the units," he said.

In any case, none of the company's Russian customers has given up the down payments since the company asks for a higher percentage as down payments for foreign clients.

Panom Kanchantiamtao, managing director of the property consultant Knight Frank Chartered (Thailand) Co Ltd, said the 50% decline of the ruble value doubled the repayment burden of Russians here.

Samma Kitsin, director of Real Estate Information Center, said the ruble crisis would affect Thailand's tourism and property sectors, especially the Pattaya, Phuket and Samui markets.