Thailand to Relax Outflow Rules, Encourage Hedging, Tarisa Says
Shanthy Nambiar and Suttinee Yuvejwattana
February 01, 2010

Thailand’s central bank plans to make it easier for exporters and importers to manage currency risks and will loosen rules on capital outflows, helping companies cope with the strongest baht since June 2008.

“We want the private sector to be able to manage their risk effectively,” Bank of Thailand Governor Tarisa Watanagase, 60, said in an interview today in Bangkok. Tarisa said the changes aren’t an attempt to counter appreciation in the baht.

Thailand’s new rules, scheduled to be unveiled later today, come as an Asian-led rebound from the global recession spurs bets on currency gains across the region. The baht rose 4.2 percent in 2009, the fourth-best performance among Asia’s 10 most-traded currencies, as overseas investors pumped a net $1.1 billion into local stocks.

“The central bank is reacting very nervously to an appreciation in the exchange-rate,” said Dariusz Kowalczyk, chief investment strategist in Hong Kong at SJS Markets Ltd. “They obviously could either intervene more or tighten regulations. They have history of surprising the market on that front. In the past they have spooked investors.”

Gains in baht threaten to derail a recovery in Thailand’s exports, which started to pick up in the final quarter of 2009 after a 12-month slump. The baht climbed 5 percent in the past year, lagging behind the 22 percent advance in the Indonesian rupiah and the 18 percent rally in the South Korean won.

Record Reserves

The Bank of Thailand in August said companies with assets of at least 5 billion baht ($151 million) will be eligible to invest up to $50 million each in stocks and bonds abroad. Institutional investors will be allowed to trade derivatives linked to foreign currencies, interest rates, commodities, bond prices and stocks. Transactions with foreign parties will be allowed, the bank said then.

Tarisa said rules to be announced today, most of which will be effective immediately, would only impact on the baht “over time.” She didn’t give details.

Taiwan’s central bank has banned foreign investors from putting money in time deposits and issued a statement last month stressing the benefits of capital controls. The document repeated comments from Nobel Prize-winning economist Joseph Stiglitz that emerging-market countries should consider measures to reduce inflows. Brazilian Finance Minister Guido Mantega in October imposed a 2 percent tax on foreigners’ purchases of stocks and fixed-income securities.

“We absolutely have no intention” to peg the baht’s level,” Tarisa said. “We step into market only when we see excessive volatility.”

Not Too Strong

Central banks intervene in the currency markets by arranging purchases or sales of foreign exchange. Thailand’s foreign-exchange reserves climbed to a record $143.4 billion in the week ended Jan. 22 as the central bank bought dollars to limit appreciation in the currency. Tarisa said that the baht was rising in line with regional currencies and wasn’t either too strong or too weak.

Thai policy makers last imposed limits on funds entering the nation in December 2006 to slow baht gains and protect exporters, a measure that led to a divergence between the onshore traded value of the currency and the offshore value. Equity investors were exempted from the restrictions on Dec. 19, 2006, after the benchmark stock index slumped 15 percent. The curbs were fully lifted in March 2008.