Wow! They’ve still shot themselves in the foot credibility wise, but Rascal, you could be right! They’re at leat acknowledging the reality. Mind you they could reverse it and remove all credibility.
It’s not a bad each way punt. Risky as hell, mind.
HG
BLACK TUESDAY ANALYSIS
Pridiyathorn’s big gamble
nationmultimedia.com/2006/12 … 021986.php
MR Pridiyathorn Devakula, deputy prime minister and the finance minister, and the banking authorities have made a big mistake by introducing wholesale capital controls instead of imposing the selective capital controls at the money market only to stem the baht speculation.
The result of this wholesale capital controls is the collapse of the Thai stock market. More than Bt800 billion in wealth was wiped out from the stock market on Black Tuesday alone amid panic selling unseen in recent history.
It is true that Thailand is facing economic trouble from the intense baht speculation. If unchecked, the baht could move up to Bt31Bt32 against the US dollar to bankrupt the Thai exports, whose margins have been badly squeezed by the stronger baht. Since the beginning of this year, the baht has jumped from Bt41 to Bt35, the highest level in the region.
A former Bank of Thailand official said the banking authorities should have imposed selective controls at the money market to tackle with the baht speculation at source. The foreign institutional investors and money managers have been pouring their investment into the baht bond market in order to make profits from the high interest rate of 6 per cent as well as the upward trend of the baht.
Trading in the baht bond market has jumped sharply from Bt10 billion a day to around Bt50 billion a day. Over the past three months, some Bt100 billion of foreign money has been flowing into Thailand to invest in the shortterm paper to speculate the baht rise.
“If they would like to quash the speculation, they could have introduced the measures at the money market. But instead, they have imposed the capital controls at capital inflows without any discrimination,” said the former Bank of Thailand official.
With the indiscriminate practices, the foreign stock investors can only unload their investment portfolios. But that does not mean that the money is flowing out of Thailand like the 1997 financial crisis.
"Just wait and see, I don’t think the baht will weaken like what the banking authorities would like to see because the money is not flowing out of the country. The foreign money, invested in stocks and bonds, is still locked in country. Once the foreign investors have sold stocks, they get into the bond market instead for further speculation.
“If the maturity of the bonds expire, the foreign investors will continue to roll over their investments. If the banking authorities are smart, they should have imposed the selective controls against the speculation in this money market,” the former official of the Bank of Thailand said.
Yields of all maturity bonds yesterday rose 20 basis points across the board, according to the Thai Bond Market Association. The bond market has been blamed as the main source for the baht speculation.
“Although the trading volume was active, there’s no sign of capital outflow,” an official at Thai BMA said.
Understandably, between the stock market and the export sector, Pridiyathorn would have to protect the export sector, which is the engine of the Thai economic growth. But the stock market, which he intends to let go for the moment, also represents the wealth of the nation.
Broadly speaking, foreign money flowing into Thailand goes into foreign direct investment, the equity market and the money market (for example, baht bond, nonresident accounts). The Bank of Thailand has introduced a shock therapy to ward off the baht speculation by requiring the foreign investors to put 30 per cent of their total investment as reserve requirement into the noninterest bearing account of the central bank. If the investors take their money out within one year, they will only get the 20 per cent amount while the remaining 10 per cent will go to the central bank’s coffers.
Under this measure, the foreign investors are to face a double jeopardy: they can only invest 70 per cent of their money brought into the country; and if they keep their money in Thailand for less than one year, they will be subject to 10 per cent withholding tax.
Korn Chatikavanij of the Democrat Party has also called for the banking authorities to reverse the capital controls measure before it is too late.
“The capital controls measure will destroy the stock market,” he said late Monday.
“First, the foreign investors would not take their money to invest in Thai stocks if they can invest only 70 per cent of the total amount they bring into the country,” Korn said.
“Second, some foreign institutional investors are obliged to sell Thai stocks because they have their own conditions that they would not invest in a country with capital controls.”
A source at a US investment banking house said: “This is what we call credibility damage. We never thought that they would think in this short term and bureaucratic way. Already the foreign investors are concerned about the issues of nominees. Now it seems that there is no direction in this country.”
by Thanong Khanthong
The Nation