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Korn rules out return to capital control

By THE NATION

Finance Minister Korn Chatikavanij yesterday ruled out the possibility that Thailand would reimpose a 30-per-cent capital control, dashing exporters' hope for strong measures to slow capital inflows and appreciation of the baht.

In an interview with the CNBC television channel while in Washington, DC, Korn acknowledged that it would be difficult to reinstall the capital control, imposed in 2006 and abolished in 2008 amid criticisms from foreign investors, as a universal control was inappropriate.

Prime Minister Abhisit Vejjajiva said in Bangkok that Korn would present a list of measures to aid those hit by the baht's appreciation for the Cabinet's approval on Tuesday.

The finance minister explained that the measures would emphasise further relaxation of restrictions on overseas investment and exports. It will also be proposed that the government invest in infrastructure, cashing in on the strong baht, which reduces the cost of imports for such projects.

Korn said speculation should not be a problem, as only a tiny amount of inflows were for that purpose. He also urged European countries - experiencing an economic crisis likened to the one Asia witnessed in 1997 - to impose balanced measures, as budget tightening could lead to financial damage given the continent's large size.

He is in Washington for the World Bank/International Monetary Fund Annual Conference.

While saying that the central bank has full control over the foreign-exchange market, Abhisit supported Korn's move to urge developed countries and emerging countries to formulate a joint mechanism to ease the impacts from the United States' weak-dollar policy.

"Relief measures for exporters will be discussed by the Cabinet on Tuesday," he said. "Exporters have to adjust, but some, particularly SMEs and those without hedging, should be assisted. The Export-Import Bank of Thailand and the Small and Medium Enterprise Development Bank of Thailand will play a role."

As the government mulled more measures on top of the seven it imposed in September, which were not able to help exporters or stem the baht's rise much, the currency yesterday weakened to 30.06 per US dollar.

Thai National Shippers Council chairman Paiboon Phonsuwanna urged the Bank of Thailand to send the market a strong signal that it would intervene in the foreign-exchange market to weaken the baht against dollar.

"If the central bank sends a strong signal for a weaker baht, even though it does not take any action, this should slow down the pace of appreciation," he noted.

All eyes are now on the Monetary Policy Committee's meeting on October 20, on fears that more inflows could be attracted if the MPC approves a policy rate hike. Bank of Thailand Deputy Governor Atchana Waiquamdee admitted there was a chance for a delay in such a move if the strong baht softens inflationary pressure.

According to the central bank's data, Thailand's international reserves as of October 1 rose to US$1.648 billion (Bt49.54 billion) from $1.631 billion in the previous week, indicating the continued buying into the US dollar to weaken the baht. The net forward position stood at $13 billion, up from $11.07 billion as of September 24.

-- The Nation 2010-10-09

[asiawatcher]

Nice - Thailand's international reserves are less than its former criminal Prime Monster.