Thai finance minister defends recent divisive policies

The Straits Times, January 18, 2007



BANGKOK - The Thai finance minister defended capital control rules that sent the stock market plummeting, and said recent divisive investment policies were crucial for maintaining economic stability.

Mr Pridiyathorn Devakula said the measures would help boost Thai exports and private investment this year, while the stock market tumble would be shortlived.

'Export is Thailand's economic fundamental, and is very important to the stock market. If the baht gets stronger, it will effect listed company's results and will effect the stock market anyway,' he told a seminar on Thursday.

Stocks plummetted 15 per cent on Dec 19 after the Bank of Thailand imposed reserve requirements which effectively lock up for a year 30 per cent of any fund inflows to Thailand. The measure aimed at halting the soaring baht.

Markets took another knock last week when the government approved amendments to the Foreign Business Act limiting foreign investors to holding 50 per cent of the shares and 50 per cent of the voting rights in companies.

Mr Pridiyathorn said the amendment was necessary to give foreign companies time to make sure they complied with Thai laws in light of any ruling on a deal involving ousted premier Thaksin Shinawatra's telecom giant Shin Corp and Singapore's Temasek Holdings.

Temasek's takeover of Shin Corp last year sparked public protests. The Commerce Ministry has declared the deal illegal, and other investigations into the sale are still under way.

'The intention of the law amendment is to make foreign investors feel comfortable with the government's current investigations' into the Shin Corp deal, said Mr Pridiyathorn.

He said that another 12 companies were being investigated for possibly violating the Foreign Business Act.

He did not say who the companies were but Britain's Financial Times newspaper on Thursday said local subsidiaries of DHL, Tesco, Carrefour, Norway's Telenor, and Holcim's Siam City Cement were among them.

'Before the amendment, they were panicked because they knew that their shareholdings have violated Thailand's foreign ownership rules,' he said.

'The intention of the law amendment is to prevent the turmoil in forced selling of shares if investigations of those 12 companies prove that they violate the country's laws,' Mr Pridiyathorn said.

'Instead of forcing them to sell their shares in one day, we give them one year to comply with the laws.'

Mr Pridiyathorn also defended the capital control measures, and said that if they had not been implemented Thailand would have faced an export crisis because the baht was rising ahead of regional currencies.

Central bank governor Tarisa Watanagase told the seminar that the baht now remained steady at about 36 to the dollar, indicating that the policy was working.

'It made the Thai baht weaken by 2 per cent since Dec 18, and made it move in line with other regional currencies,' she said.

Mr Pridiyathorn said he expected economic growth in 2006 to be not less than 5 per cent, while Ms Tarisa said they expected they figure for 2007 to be lower than last year.

Mr Pridiyathorn said exports would increase 9 per cent on last year in value terms, while private investment would rise 6 per cent. -- AFP