Thailand could ease capital controls if baht steadies

The Straits Times, January 24, 2007

BANGKOK - The Bank of Thailand said that it might consider relaxing capital control rules if authorities were convinced that the Thai baht would hold steady against the dollar.

'We're ready to do anything that will not make our (currency) fluctuate so much. We're especially ready to do something for money coming in for real investments and not just for hidden speculation,' central bank governor Tarisa Watanagase told reporters on Wednesday.

'The bank does not want to impose this measure for a long time and it is ready to ease the measure if the baht's stability would not be affected,' she said.

The remarks came one day after Finance Minister Pridiyathorn Devakula surprised markets by saying that the capital controls would remain in effect, despite widespread expectations that they would be relaxed.

Reserve requirements imposed in mid-December effectively lock up for a year 30 per cent of any fund inflows coming into Thailand for financial investment.

The imposition of the controls sparked a stock market crash in December, prompting authorities to allow an exemption for investment in shares. Other types of investments remain subject to the new rules.

The rules were designed to control the baht's rapid rise, which hurts Thailand's critical export sector by making Thai goods more expensive overseas.

The export sector accounts for some 60 per cent of Thailand's economic output.

Suchart Sakkankosone, who heads the central bank's exchange control department, said the central bank was considering a range of ways to adjust the controls.

He said that rules might be eased for Thai subsidiaries of international companies, as well as on borrowing to invest in expanding a business. -- AFP