BoT Relaxes On Capital Control Measures

[Jai Dee]

BOT relaxes on capital control measures

Companies in Thailand borrowing in offshore markets will have relief from capital controls effective Feb. 1 if they immediately hedge the proceeds via foreign exchange swaps, the Bank of Thailand Governor Tarisa Watanagase said Friday.

However she said BOT will just relax the measures but will not the capital control measures.

The central bank imposed a one-year, 30% withholding requirement on many types of capital inflows in mid-December in order to relieve speculative pressure that had driven the baht to a nine-year high.

But it has since been forced to create exemptions for vital investments and other transactions.

"We are not removing the 30% requirement, but we are offering an option. If they choose a swap to hedge it, they can still get the full amount borrowed, but it will increase costs," she said.

She said a formal announcement would be made in a day or two, presumably meaning early next week.

Swapping the proceeds into baht, which entails a future obligation to swap back into the foreign currency, will allow the transaction to take place without disrupting stability in the regular spot market for baht, Tarisa said.

However, the governor didn't address the issue of the disruption caused by a lack of baht liquidity in offshore foreign exchange markets as a result of the reserve requirement.

At 9.35am, the dollar was quoted at Bt35.855 in onshore markets, up from Bt35.79 late Thursday due to suspected intervention by the central bank, dealers said.

In offshore markets, however, the dollar was quoted in a wide bid-offer range of Bt34.10-Bt34.20, versus Bt34.00-Bt34.15 late Thursday in Asia and Bt34.10-Bt34.30 overnight in New York.

Source: The Nation - 26 January 2007

[Jai Dee]

Bank of Thailand to relax capital control rules

The Bank of Thailand (BoT) confirmed Friday it will ease controversial capital control measures that sent the stock market plummetting last month, by exempting more overseas investment.

BoT governor Tarisa Watanagase said that money borrowed overseas and invested in Thailand would not be subject to the reserve requirement measures, so long as all the money was hedged against the exchange rate.

"The bank will officially announce the easing early next week, and it will be effective from February 1," she said.

Reserve requirements imposed in mid-December effectively lock up for a year 30 percent of any fund inflows coming into Thailand for financial investment.

The imposition of the controls sparked a 15 percent drop in the stock market in December, prompting authorities to allow an exemption for investment in shares. Other types of investment had remained subject to the new rules.

The measures were designed to curb the baht's rapid rise, which hurts Thailand's critical export sector by making Thai goods more expensive overseas. Since the controls were imposed, the baht held at around 36 to one US dollar, but over the past few days it has crept up to around 35.75.

Tarisa said she was not concerned by the gain, as it was driven by offshore trading.

"The BoT is not detecting any significant outflow of funds, because if the capital wanted to re-enter Thailand, then it would be subjected to the 30 percent reserve," she said.

"Thus it's not worth to take funds out at this time," she added.

Source: The Manager - 27 January 2007

[Chang_paarp]

The contestant is in position.

The springboard is flexing.

The judges are ready.

Will it be a double somersault with pike or a triple? .............

[george]

BOT further relaxes currency control measures

BANGKOK: -- The Bank of Thailand Monday officially announced relaxation on the draconian 30-percent withholding requirement for corporate foreign borrowing with fully hedging.

According to the central bank's circular, eligible foreign borrowings that would be exempted from the reserve requirement include general foreign borrowing, intercompany loans, and foreign capital derived from debt instrument issuing. These loans must be fully hedged by foreign exchange swap or cross currency swap.

The borrowings with maturity more than one year, must do the fully hedging for at least one year. After the first year, borrowers can manage foreign exchange risk according to their will.

In addition, foreign borrowing for exports in terms of packing credit with maturity less than 180 days that local financial institutions have done with local corporate customers and that borrowers promise to repay debts once they get paid from exports will also be exempted from the measure.

In addition, the transactions that would be exempted from the 30percent reserve is payment for non-performing loans or guarantee for individual in Thailand with liability document indicating of the payment.

Moreover, the central bank also added the exemption of the withholding measure for warrants, transferable subscription right, and depository receipts, in addition to stocks traded in the Stock Exchange of Thailand and the Market for Alternative Investment.

-- The Nation 2007-01-29

[samtam]

So that would leave precisely what that is still under the forex controls? Obviously their imposition is having such a huge impact on restraining the rise of the baht.....or shall we say the weakness of the dollar. So this little PR exercise/disaster has taken about three weeks to unravel, causing untold of confidence reducing measures, for very little benefit. Another masterly stroke from the gnomes of Bangkok.

[Arkady]

So that would leave precisely what that is still under the forex controls? Obviously their imposition is having such a huge impact on restraining the rise of the baht.....or shall we say the weakness of the dollar. So this little PR exercise/disaster has taken about three weeks to unravel, causing untold of confidence reducing measures, for very little benefit. Another masterly stroke from the gnomes of Bangkok.

It seems to leave all unhedged foreign borrowings, inflows to buy bonds in the secondary market, mutual funds and property funds (REITs). The whole thing has been a complete fiasco. No heads have rolled and they have the gall even to congratulate themselves on a job well done e.g. "in 10 years time Thais will be hailing La Doctoressa T as a genius for imposing capital controls (for two months!)". Quite puke making.

[usatrader]

So that would leave precisely what that is still under the forex controls? Obviously their imposition is having such a huge impact on restraining the rise of the baht.....or shall we say the weakness of the dollar. So this little PR exercise/disaster has taken about three weeks to unravel, causing untold of confidence reducing measures, for very little benefit. Another masterly stroke from the gnomes of Bangkok.

Unquestionably, though hardly a totally negative circumstances, jus pos, the US's world trade imbalance, the USD has been on a roller coaster ride within a reasonably narrow range of flux among many major currencies.

Though for decades it has been clearly overvalued and was long over due for a better trade imbalance equalialization vis v a better currency trading competitiveness.

Yet, when one looks at the Bhat, they see its strengthing widely spread against most major currencies not only the US dollar, while at the same time most, though not all, of those other major currencies are in an up and down yet slightly increasing trend verses the USD.

Kind of showing the Bhat activities seems less tied to any issue with the dollar and more as to foreign capital inflows and or perhaps in combination with Thailand's, until recently secret, purchase of North Korean Gold, thus increasing its gold reserves, an act that could perhaps elevate a currency value as I understand it.

YEARLY AVERAGES

----------------- YR------------------USD--------BP---------YEN--------EURO-------CD---------YUAN

----------------2003 -------------41.54426 67.916268 35.8492 47.02851 29.732675 5.019131

----------------2004 -------------39.1765 72.441658 36.8200 48.806135 29.818061 4.826264

----------------2005 -------------40.142 72.224033 35.7418 49.105253 33.849381 4.967832

----------------2006 -------------37.7712 69.7328 32.4217 47.5087 33.7469 4.7359

------------1990 to 2006---------- 47.49% 52.56% 82.71% 17.79% 53.74% -11.47%

1 Yr Chg 2005 to 2006 -5.91% -3.45% -9.29% -3.25% -0.30% -4.67%

2 Yr Chg 2004 to 2006 -3.59% -3.74% -11.95% -2.66% 13.18% -1.87%

3 yr Chg 2003 to 2006 -9.08% 2.67% -9.56% 1.02% 13.50% -5.64%

Average Annual Rates

http://www.x-rates.com/d/THB/USD/hist2006.html

The wierd aspect to all this is this oddly unusual imbalance between the local rates of exchange and the off shore rates. Which has fluxed around 6.64% less for off shore foreign exchange into bhat vs on shore foreign exchange for bhat. (Using roughly the 1/26 off shore rate at 33.4/USD and a buy/sell split rate at Bangkok Bank of 35.78/ USD.)

My two bhat anyway.

[John K]

It still sounds to me like more of “Lets see what this does.”

[george]

Thai capital control rules eased

BANGKOK: -- The Bank of Thailand announced Monday further relaxation of its capital control rules, effectively exempting fully-hedged borrowings of up to one year, inter-company loans and funds raised from bond sales from the 30 per cent reserve requirement.

Suchart Sakkankosone, director for the central bank's exchange control and credits department told reporters that the measures, effective from February 1, would provide companies in Thailand with more options in raising foreign loans for their business, not for speculation on the baht.

The central bank would also lift restrictions on foreign loans with a maturity of less than 180 days that are used to pay for exports, he added.

Moreover, transactions to roll over existing contracts or wind down positions after default by a counter-party were exempted from the ban.

Monday’s announcement also exempts investment on debt instruments including warrants, transferable subscription rights and depository receipts from withholding requirements, in addition to equity investments.

The central bank was forced to waive the rules on stock market investments following a one-day, 15 per cent plunge in Thai stocks on Dec 19.

The controls imposed on Dec 18 required foreigners to deposit 30 per cent of non-trade related inflows with the central bank for a year, interest free.

Only two-thirds is returned if the funds are withdrawn early – exacting a hefty penalty.

The announcement also allows holders of non-resident baht accounts (NRBA) to transfer capital plus interests in and out of the country within three days instead of within the same day previously.

And if the amount is less than Bt1 million, the three-day transfer requirement does not apply. Nor will the transfer rule apply if the holders deposit their investments in the non-resident baht accounts for securities and the outstanding balance in each account at the end of each day is not exceeding Baht 100 million.

“We do not want to see the baht speculation in offshore markets; that’s why we want to restrict its movements,” said Suchart.

Currently, the combined value of the baht held in non-resident accounts totals Bt23-24 billion a day which, the central bank official said, was the same level before the latest round of the speculation on the Thai currency.

--TNA 2007-01-30

[Jai Dee]

Deputy premier believes easing on capital control won’t affect exporters

Deputy Prime Minister and Finance Minister Pridiyathorn Devakula on Tuesday expressed confidence the Bank of Thailand’s relaxation on the draconian 30 per cent reserve requirement would not have an impact on exporters.

The central bank on Monday officially announced the easing of the capital control measure under which long-term foreign borrowing with fully hedging, borrowing for exports in terms of packing credit, and transactions of warrants, transferable subscription right, and depository receipts would be exempted from the measure.

He said the reserve requirement had produced an effective result in stemming speculation on baht.

Since it was imposed more than one month ago, the baht had appreciated to 34 to the US dollar in the offshore market and 35.80 to the dollar in the onshore market.

Unless the measure was eased, he said, the baht would further strengthen to hover around 33-34 to the dollar onshore.

He believed exporters would not be affected by the relaxation of the measure.

The deputy premier said the baht trading in the offshore and onshore markets had been clearly separated since the requirement was imposed.

The spread of the currency in both markets widened by up to 2 baht. It showed what the central bank risked issuing the harsh measure to keep baht onshore stable had worked.

He said some of the capital control measure needed to be maintained to ensure the baht would not fluctuate too heavily and the exports would neither be affected by the currency volatility.

Source: TNA - 30 January 2007

[Jai Dee]

Commerce Industry explains amendments of Foreign Business Act to foreign businessmen

Commerce Industry explains amendments to the Foreign Business Act to foreign businessmen, while expressing confidence that they will be able to adjust themselves to the revised act.

Kanissorn Nawanukroh (คณิสสร นาวานุเคราะห์), the Director-General of the Department of Business Development, revealed that the department had arranged a meeting on “Amendments to the 1999 Foreign Business Act.” The meeting participants include representatives of government agencies and law offices which provide legal advises to foreign businessmen in Thailand.

The meeting is aimed to explain that the amendments will not hamper operations of foreign companies, but they will facilitate foreign businessmen. The director-general also inform the meeting participants that definitions of foreign business need to be adjusted in order to create transparency in business deals.

The director-general affirms that the department will keep explaining the amendments to those who still do not understand until the act has become effective. As for those protesting against the act, he said that their understanding of the act is still incomplete. He also speculated that this group of people has protested the act as they might lose benefits from it.

Source: Thai National News Bureau Public Relations Department - 02 February 2007

[Jai Dee]

Capital controls working well, says BOT

A two-tiered market for the Thai baht demonstrates that capital controls imposed in December to curb speculation in the currency are working, the Bank of Thailand governor reaffirmed Thursday.

Tarisa Watanagase told reporters that the central bank found the result of the reserve measure to be working satisfactorily.

She said the baht rose due to pressure from quotes in offshore foreign exchange markets, where the supply of baht has been limited by the central bank's imposition of a 30 per cent one-year withholding on many types of capital inflows.

According to the central bank, the rise in the baht was not due to capital inflows, showing that the 30 per cent measure was still working as intended to close off speculative flows.

Trying to calm exporters’ concern that the onshore rate would strengthen in line with the stronger offshore level, Mrs Tarisa said such concern was unwarranted. The two-tiered market for the Thai baht and the capital controls would make it unlikely to happen, she said.

The BOT chief said she was hopeful that foreign investors would sooner or later be persuaded to

engage in onshore trade of the baht and to hedge their foreign funds in larger amounts to protect themselves against foreign exchange losses.

The central bank governor also advised Thai exporters to be careful when quoting prices, preferably using the onshore exchange rate.

Under the capital controls, 30 per cent of foreign currencies traded against the baht must be held in reserve with the central bank, interest free, for a year. Only two-thirds of the reserve is handed back if the funds are repatriated within a year. Some types of transactions, including equity-related trades, are exempted.

Source: TNA - 2 February 2007

[Jai Dee]

30% WITHHOLDING RULE

Funds look likely to get exemption

Full solution to be worked out, but relaxation probably akin to that for foreign loans

The Bank of Thailand yesterday discussed with fund managers from 20 asset-management companies a plan to revoke the remunerated reserve requirement for non-residents investing in all kinds of mutual funds, including property funds.

The two sides have not yet been able to find a complete solution, but the relaxation is likely to be on the same basis as the exemption for foreign loans and debt securities.

Under that easing of the rule, non-residents are required to do a full one-year swap for their foreign currency to be converted into baht. They are also obliged to open a new account for more than one-year investment in mutual funds and debt securities.

Maris Tarab, managing director of ING Funds (Thailand), said the relaxation would mostly benefit the mutual-fund business, which is currently bearing a cost of 40 per cent. This is calculated as an effective rate, as the hedging cost is only 0.83 per cent a year.

Fund managers would be able to push mutual funds ahead as planned, particularly property funds worth a total of Bt100 billion expected to be launched this year. The bourse would also benefit from an exemption for flexible and equity funds, Maris said.

But fixed-income funds would not gain much benefit if the central bank waived the 30-per-cent reserve requirement, because such funds' returns remain low, added Maris, who is also chairman of the Association of Investment Management Companies.

"The withholding reserve does not cost the fund investors 30 per cent, but about 39-40 per cent," he said.

Maris said fund managers could track down the money non-residents brought in, as they know the flow of funds between equity and debt markets in many companies. Tracking the flow would prevent any undesired speculative inflows.

The asset-management companies received a positive response from the central bank at yesterday's meeting, having put forward the relaxation proposal via the Securities and Exchange Commission last year.

The six types of mutual funds are property, equity, fixed-income, flexible, country and private funds. The Thai Trust Fund has already been waived from the reserve requirement. The central bank will study the results of any further exemption, particularly baht volatility.

Venture capital will be considered separately from other types of funds, as it is not counted as a mutual fund but foreign direct investment.

Maris said venture capital was good for newly established small and medium-sized enterprises, as investors put money in for the long haul - often five to seven years.

The Bank of Thailand relaxed its remunerated reserve requirement for inter-company loans and is reconsidering a waiver for debt-security investment.

Earlier, Governor Tarisa Watanagase said she wanted to ensure stability of the baht before providing further relaxation of the withholding measure. She said exemption for property funds would have to be reconsidered cautiously, as the business has grown tremendously over the past few years.

According to Maris, the size of property funds was Bt45 billion last year, an increase of Bt2 billion from the previous year. Thirty per cent is owned by foreign investors.

Meanwhile, the Stock Exchange of Thailand yesterday published a report on four long-term impacts of the 30-per-cent withholding measure.

Firstly, foreign capital inflow is expected to fall, although there is no exact evidence to tell how much is due to the measure. However, the Morgan Stanley Capital International Far East Index ex-Japan has fallen from 2.6 per cent to 2.3 per cent.

Second, the price-earnings ratio discount of the Thai stock market has increased due to the measure.

Third, the measure will encourage new companies to list on the stock markets of other countries where price-to-earning ratios are higher than the Thai market.

Last, trading volume in the Thai market is expected to decline if the measure continues in place.

Source: The Nation - 14 February 2007

[John K]

Yep! Post #8 applies. I wonder how long before the whole plan is scrapped.

Here is the USD to THB for the last month compliments of Oanda

01/14/2007 36.04620

01/15/2007 36.050

01/16/2007 36.00020

01/17/2007 35.92760

01/18/2007 35.84070

01/19/2007 35.50230

01/20/2007 35.32510

01/21/2007 35.370

01/22/2007 35.3510

01/23/2007 35.25220

01/24/2007 35.08620

01/25/2007 35.19560

01/26/2007 34.66530

01/27/2007 33.99050

01/28/2007 33.68310

01/29/2007 33.67530

01/30/2007 34.15520

01/31/2007 34.63230

02/01/2007 34.80

02/02/2007 35.17180

02/03/2007 35.29970

02/04/2007 34.90720

02/05/2007 34.90

02/06/2007 34.92620

02/07/2007 34.91860

02/08/2007 34.78540

02/09/2007 34.54730

02/10/2007 34.22550

02/11/2007 33.70720

02/12/2007 33.70

02/13/2007 33.82070

02/14/2007 34.00920

[Jai Dee]

PM says government works under legal framework

Prime Minister Surayud Chulanont said that his government is working under the principle of legal framework after many sides view that the government is currently in a “neutral” state.

The Prime Minister said before the government makes a decision, information has to be sufficient, and emotional aspect is not enough. He said many policies of his government such as the 30% reserve rule for non-resident investment in unit trusts and debt instruments have been issued to maintain the economic stability, and he considered that the results are worthwhile.

As for the amendment of the Foreign Business Act, he said the change has been made to prevent “nominees” and to promote transparency and fairness in investment.

Source: Thai National News Bureau Public Relations Department - 14 Febuary 2007

[Old Man River]

The whole thing has been a complete fiasco. No heads have rolled and they have the gall even to congratulate themselves on a job well done e.g. "in 10 years time Thais will be hailing La Doctoressa T as a genius for imposing capital controls (for two months!)".

While I will not predict how things are viewed in 10 years, now, apart from the 1 day fiasco in the onshore equity market, the capital controls have done exactly what was hoped for. Speculators are now forced to play their games in the offshore currency markets, with the onshore THB/USD rate now being affected by normal market issues.

The reason the above is important is that the government has to protect its agricultural exports. While electronics exports is the biggest sector, many of these are assembly operations which use large amounts of imported materials, creating a hedge. The agricultural industry has practically no imports factored into its exports, hence, they are at the mercy of the appreciating THB. With approx. 60% of Thailand's population being employed in agriculture, protecting this industry is paramount, and if it takes capital controls or even a Malaysia scheme, then so be it.