Thailand Loosens Outflow Spigot

[churchill]

BANGKOK -- Thailand's central bank eased regulations on Thai companies investing overseas, in another move to reduce upward pressure on the baht.

The news came after the government and exporters pressured the Bank of Thailand to act against the persistent rise of the baht and to shore up the country's competitiveness.

But the announcement had little immediate effect on the exchange rate, since any investments under the new regulations will take time. Late Wednesday in Bangkok, the U.S. dollar was trading at 33.98 baht, unchanged from prior to the announcement.

Among the rule changes, major corporations with assets of at least five billion baht ($147.1 million) can now invest in foreign assets.

There are presently 503 companies that meet the new criteria, and each will be allowed to invest up to $50 million in foreign assets. Anything beyond that will require central bank approval, Assistant Governor Suchada Kirakul told a news conference.

Previously, only certain institutional investors were allowed to invest in foreign assets. Individuals could invest offshore only via brokerage firms or mutual funds, while corporations were allowed to do so only through the central bank's approval on a case-by-case basis.

"In the short term, the measures will have a psychological effect that would limit the baht's appreciation pace," Ms. Suchada said. "The measures would encourage more investment in foreign assets as well as make it more convenient for importers and exporters to hedge their foreign-exchange positions."

A Bangkok-based dealer said any immediate impact would be "rather limited," as there is only a handful of eligible investors, and they will need time to study investment opportunities before shifting their funds.

As part of the amendments, eligible investors can engage in securities borrowing and lending as well as derivative transactions linked to foreign variables that don't use the baht's movement as an underlying factor. The revisions also relax regulations to facilitate more foreign-exchange hedging.

These rule changes are here to stay, Ms. Suchada said, unlike the rule in place between 2006 and 2008 limiting the rapid flow of "hot money" into Thai financial markets.

"Our objectives are not only [focused] on the exchange rate in the short term, but we also do it for the sake of the long term," she said. "As current asset prices in foreign markets are considerably cheap, this move will allow more Thais to own valuable assets abroad."

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