Financial instability of the baht rooted in money laundering activities
In the heart of Southeast Asia, Thailand's financial landscape is undergoing a transformation, with the emergence of a phenomenon known as Near-Earth Objects (NEO). This term, coined by the Bank of Thailand (BOT), refers to 'statistical discrepancies' calculated from the difference between the balance of payments and the sum of the current and capital accounts.
Over the past five years, Thailand's NEO figures have fluctuated dramatically, with an alarming spike to 530.86 billion baht in 2024. This surge suggests the presence of a potentially large shadow economy, implying lost tax revenue and inadequate oversight of illicit activity.
One major driver of large NEO figures is the presence of illegal businesses and the underground economy. These activities, such as smuggling goods without customs clearance, lead to import values in official trade data being understated. Informal labour and unregulated services compound the problem, with income from such activities typically remitted home via informal channels rather than through the banking system, leaving official remittance data incomplete.
The rapid growth of NEO is not solely attributed to data collection gaps. Experts attribute the unusual development of NEO and the strong appreciation of the Thai Baht in recent years to complex financial and economic factors. These include global investment trends, currency carry trades, and economic policies. Money-laundering transactions add another layer of complexity to NEO, with illicit funds often transferred abroad through unreported channels, bypassing the BOT's monitoring system, and having real effects on the financial system.
Drug trafficking and contraband trade are also significant contributors to the growth of NEO. While revenues from such activities are not recorded as official exports or services, they result in real foreign exchange inflows and outflows, creating imbalances in the balance of payments.
Vice-chairman of the Thai Chamber of Commerce, Limlurcha, states that the baht's appreciation is also due to a surge in cryptocurrency trading in Thailand, with investors converting crypto into baht for trading, creating additional demand and pushing the currency higher.
The continued rise of NEO is a warning sign of a shadow economy potentially larger than expected, underscoring the scale of grey and illegal businesses in Thailand's financial system. The National Economic and Social Development Council (NESDC) chairman, Supavud Saicheua, argues that the BOT should focus on scrutinizing unexplained inflows, particularly from grey businesses, rather than curbing gold trading to slow the baht's rise.
While no specific individuals or groups are universally identified as responsible or capable of stopping this progression, it is clear that addressing the issue of NEO requires a comprehensive approach, involving increased transparency, stricter regulations, and international cooperation. The challenge is immense, but understanding the factors driving NEO is the first step towards tackling this complex issue.
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