Thread: Thai capital controls will stay: new finance minister

Thai capital controls will stay: new finance minister

New finance minister Chalongphob Sussangkarn said Friday he would keep controversial currency rules, dashing market speculation that the government would soon lift the measures aimed at curbing the Thai baht's rise.

The controversial capital rules required 30 per cent of all incoming investment to be held by financial institutions for up to one year.


Many exemptions have since been made to the controls but the general policy remains in place with the military-installed government.

The appointment of Chalongphob as the new finance minister earlier this week raised hopes that the government would end the stringent rules as the former World Bank economist had previously come out against them.

But Chalongphob said the capital rules were needed to control the Thai unit, which has risen nearly 12 per cent against the dollar over the past year.

"Regarding the 30 per cent reserve rules, I personally think that Thailand still needs measures to manage capital flows in and out of the country," he told reporters.

"At the moment, appropriate measures (to replace the capital rules) have not been found and any policy changes must be made appropriately and gradually to minimise impacts on the stock market," he said.

When the government introduced the capital measures in December, investors panicked, causing the biggest one-day drop in the Thai stock market with losses worth a staggering 23 billion dollars.

The Thai baht, which on Thursday hit a new nine-year high of 35.10 against the dollar on hopes for an end to the measures, fell to 35.30-36 following Chalongphob's remarks before picking up again to 35.20 levels.

"Investors were cleary disappointed by his comments," said a Bangkok Bank dealer.

The December market plunge forced the Bank of Thailand to quickly ease the regulations, allowing money to come in for stock investment, an embarrassing U-turn that damaged the government's credibility in the eyes of investors.
Agence France Presse

Thailand will adjust reserve rules

(BangkokPost.com, Agencies)
The Bank of Thailand is willing to end its 30 per cent reserve requirement when local commercial banks are ready to accommodate the demand for fully hedged business transactions by foreign investors, according to the central bank governor Tarisa Watanagase.
But new Finance Minister Chalongphob Sussangkarn said on Friday, his first day on the job, that he wants Thailand's capital controls adjusted in ways that don't shock markets. Some measures will still be needed to prevent inflows from creating excessive volatility, he said.

His comments confirmed that he probably wants to abandon the severe 30 per cent one-year withholding imposed by the central bank in December. But his views are likely to relieve the recent upward pressure on the baht from dollar sales by exporters, on fears that a quick lifting of the withholding measure could lead to a sharp drop in the dollar.

"It is still necessary to have certain measures to take care of capital flows. We have to continue thinking of what will be appropriate," he told reporters.

Delivering a keynote speech on “Whether the Central Bank Should Intervene in Baht,” Mrs Tarisa said the Bank of Thailand’s move to further ease capital controls by exempting foreign investment in fully hedged debt securities and unit trusts would take effect on March 15.

After that, the bank would evaluate whether commercial banks are able to accommodate a demand for fully-hedged transactions by foreign investors or not.

She said the bank was confident that the commercial banks would not have any difficuly in doing that because their liquidity is currently high, thanks to a slowdown in lending in the past year.

Mrs. Tarisa said the bank would make a random examination of fully-hedged transactions at financial institutions. Should the evaluation produce satisfactory results, the bank is prepared to end all reserve controls except the full hedging for foreign investment.

Such a measure would only be temporary, but will be cancelled when the situation returns to normal, she said.

The BOT imposed the measure on short-term capital inflows December 19 to halt the rise of the baht after the currency surged 17 per cent against the US dollar last year.

Regarding the baht rise to hit a 9-year high at 35.10 to the US dollar on Thursday, Mrs. Tarisa said it stemmed from heavy selling of the greenback by exporters, who feared the currency would further strengthen if the central bank ended the reserve requirement.

She said the central bank would attempt to give the exporters a proper understanding that the full hedging for foreign investment would be required although the bank would end the capital controls.

does anyone know who is running this country

I think they don't know themselves

Is it possible to shoot all 10 feet?

Originally Posted by William

does anyone know who is running this country

I thought Danbo was doing it

The baht is very strong against U$D, GBP and EURO this week.

But never mind because the Thai economy is import based and thats good for the country

Originally Posted by Thetyim

Originally Posted by William

does anyone know who is running this country

I thought Danbo was doing it

It's actually me, Danbo and a handpicked committee of easily bribed badgers. We make all our policy decisions after consuming large quantities of illegaly brewed super strength cider.

Which are the exemptions to this 30% rule and at what amount does it kick in?