Thailand plans more capital control adjustments

The Straits Times, January 27, 2007

BANGKOK - Thailand will announce on Monday that foreign loans brought in by private businesses will be exempt from capital controls and it will consider treating inflows to be invested in bonds in the same way, the Bank of Thailand said.

The loans to be exempted from a 30 per cent reserve requirement will have to be fully hedged for up to one year to protect against foreign exchange loss, central bank Governor Tarisa Watanagase told reporters late on Friday.

The adjustment would take effect from Feb 1 and, if it worked well, the central bank would consider allowing a similar relaxation for bond investments, she said.

'After the loans, we will look at bond investments and may give them the same choice. But we have to make sure that the baht is stable and who is buying the bonds,' Ms Tarisa said.

Bond holders might have to be registered so the central bank can see how they are changing hands, she said.

The Thai authorities have been trying to hold down the baht , which gained almost 14 per cent against the dollar last year, more than any other Asian currency.

Ms Tarisa said investments in mutual funds and property funds would not be excluded from the controls, under which 30 per cent of non-trade-related inflows must be handed over interest-free for a year, with early withdrawal resulting in a stiff penalty.

'Property funds are a fast-growing sector and easy to expand. They are risky products. Although money coming into the funds is long-term, it can be speculative inflows,' Ms Tarisa said.

If the baht was stable, the central bank would consider making more adjustments as it tried to fine-tune the measure, Ms Tarisa said.

She did not say what an appropriate level for the baht should be, but said the currency should not move too rapidly and should be in line with regional currencies. -- REUTERS