Draconian controls imposed to help baht

[soiarrai]

http://www.ft.com/cms/s/...

 

By Amy Kazmin in Bangkok

Published: December 18 2006 19:25 | Last updated: December 18 2006 19:25

 

Thailandâ??s central bank imposed draconian capital controls to try to stem rapid appreciation of the baht yesterday, forcing offshore investors to keep their money in the country for at least a year or face stiff penalties for early withdrawal.

 

As from Tuesday, 30 per cent of all foreign currency inflows of more than $20,000 will be held on deposit â?? interest free â?? by the central bank, unless it relates to a trade in goods or services.

 

Tarisa Watanagase, who was appointed Bank of Thailand governor after the September 19 coup, said investors could receive their money back after a year. But should they wish to repatriate money overseas sooner, they would be refunded â??only two-thirds of that amountâ?Â, she said.

 

The currency weakened sharply at the announcement to Baht35.82 to the dollar; down from the nine-year high point of Baht35.06 earlier in the day but closed at Baht35.23.

 

Pridiyathorn Devakula, finance minister, called the decision an â??historicâ? effort to counter speculation. The baht appreciated nearly 17 per cent against the dollar this year â?? more than any other Asian currency. Thai exporters have been agitated about the bahtâ??s strength.

 

Analysts were shocked and dismayed by capital controls, which, they said, would deter foreign capital inflows into Thai assets, including the stock market.

 

Sriyan Pietersz, head of research at JP Morgan, said: â??Itâ??s like hitting an ant with a sledgehammer. It will probably be helpful in achieving their goal, like getting pressure off of the baht, but itâ??s a very broad instrument because you are pounding equity investors as well.â?Â

 

The announcement came after the stock market closed but analysts warned of an equity sell-off if investors decided there would be little further upside to Thai stocks, given the probable lack of future foreign buyers. Some overseas funds also bar investment in countries with capital controls.

 

Given the coup, and uncertainty about whether the administration will be able to restore democracy within a year, analysts also said few foreign investors would accept being effectively forced into a year-long bet.

 

â??This is a country that just had a coup, and you are not entirely sure that everything is going to pan out like it is supposed to,â? said Mr Pietersz. â??Are you going to risk your money for a year?â?Â

 

Shahab Jalinoos, an ABN Amro strategist, warned in a client note of â??longer-term net negative consequences for Thailand via damaged sentiment and capital markets, rather than a positive impact on Thai exportersâ?Â.

 

Speculators appear to be the target of the controls.

 

Ian Gisbourne, head of research at Phatra Securities, said the administrative measures would also mean headaches for foreign direct investors, already jittery about Bangkokâ??s plans to revise the ambiguous foreign investment laws, which may force them to sell down their Thai holdings.

[cavanami]

Ohhhhhhhhh, please, 42 Baht = $1 USD

[Flashermac]

When I came here, it was 20 to the US$.

 

 

 

[kojis]

hhhmmmm... I'm all for a weaker baht, but what do those restrictions practically mean? What are the proofs needed to move the money you bring in the country?

 

Is it going to change anything when foreigners wire over 20000$ to their thai bank account and want to withraw the funds in cash?

 

 

[elef]

These measures are copies from other countries (Malaysia one I think), to stop short-time speculators moving to baht or better making it more expensive.

 

I think we will see a dollar = 30 baht within 3-4 years.

[ThaiHome]

This is probably better than using reserves to weaken the baht, seems to be a variation in the Mahathir theory of currency controls. It will be a problem for people bringing money in for other purposes than speculation on the baht. I know one company (not mine) that planned to bring in some 15 million USD next week to pay project costs, they will not be happy to have 30% withheld as they need it all. It is going to be difficult for them to prove they are not speculating

Anxiously await our resident international banking and Thailand economy expertâ??s opinion

TH

[Khun_Kong]

What happens to the 800K baht needed for a retirement visa? Is 30% of that now frozen solid for a year also?

[Khun_Kong]

And, in related news ...

 

Thai stock market plunges 10%, trading suspended. No joke.

[elef]

Yes, heavy side-effects of this medicine, but if they stop the medication now it will be many times worse than before.

[ThaiHome]

The Nation

Tue, December 19, 2006 : Last updated 16:19 pm (Thai local time)

 

 

Key Democrat Party member Korn Chatikavanij urged the Bank of Thailand to immediately reverse the recentlyintroduced measure to intervene the currency, saying that it would cause the damages to the capital market for years. Today, Thai share prices plunged by 10 per cent at 11:30 am after the central bank took the most stringent measures since the 1997 Asian financial crisis to curb the baht's rise.

 

 

The Stock Exchange of Thailand implemented the circuit breaker measure for the first time in history to deal with the drop by suspending the trading for 30 minutes at 11:30 hours.

 

 

At 11:30, the SET nosedived to 656.49, the lowest point of the day so far. The Stock Exchange of Thailand (SET) composite index nosedived 64.62 points or 8.85 per cent to 665.93 in the first minutes of trading and the bluechip SET 50 index fell 53.10 points to 458.90.