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Thai FM defends strict capital rules

BANGKOK: The Thai finance minister yesterday defended the central bank’s controversial capital rules that sparked a stock plunge last month, saying the measures helped stabilize volatile exchange rates.
“The Bank of Thailand (BOT) measures produced excellent results over the past month in stabilizing the baht, which helped exporters,” Pridiyathorn Devakula told reporters.
The central bank imposed stringent currency rules late last month in a bid to curb the baht’s rise after the Asian unit hit a nine-year high of 35.12 against the dollar during the month.
The move came amid fears that the soaring baht could stunt growth in exports, the backbone of the Thai economy. The strong baht makes Thai exports less competitive abroad and cuts the value of companies’ repatriated profits.
The rules required financial institutions to withhold 30% of foreign currencies coming into the baht.
But foreign investors, who make up 40% of the stock market here, saw the schemes as a steep tax on foreign equity investments and dumped shares, triggering a 15% plunge in the stock market last month.
The market rebounded after authorities allowed an exemption for investment in shares in an embarrassing policy U-turn and the finance minister said the currency controls were vital to stabilising the baht.
“Without the BOT measures, the local currency could rise above 34 baht to the greenback and exports would be damaged,” Pridiyathorn said.
Since the controls were imposed, the baht had held steady at around 36 to one US dollar, but over the past few days it has crept up to above 35 to the greenback. The baht was quoted at 35.85 to the dollar in late morning trade yesterday.
Last Monday, the Bank of Thailand said it would ease some of the capital controls starting tomorrow. – AFP