Thailand Moves To Curb Baht's Strength

[webfact]

Thailand moves to curb baht's strength

BANGKOK, October 12, 2010 (AFP) - Thailand moved Tuesday to rein in its soaring currency with a package of measures aimed at easing the pain of exporters as the baht hovers near a 13-year high.

The government approved a tax for foreigners investing in Thai bonds in the hope of slowing an influx of overseas capital thought to be partly driving the appreciation of the baht.

The 15-percent levy will apply to interest and capital gains earned by foreigners from holdings of Thai government bonds, as well as those issued by state enterprises and the Bank of Thailand.

Thailand, in line with regional neighbours, has seen its currency soar as robust economic growth and rising markets attract an influx of capital. The baht's acceleration has caused concern for the key export industry.

Prime Minister Abhisit Vejjajiva said the government was trying to cushion businesses from the effects of the stronger currency.

The Bank of Thailand already announced a relaxation of regulations on direct investment and on the repatriation of export proceeds.

"The baht will not weaken from this level at the moment, so the government and the private sectors will have to cope with the situation," said Abhisit.

Finance Minister Korn Chatikavanij said the new tax, which takes effect Wednesday, would only curtail investment in bonds and not affect the stock market.

"This measure is imposed for an indefinite period of time and will be effective for all foreign investment in government bonds," he said.

He stressed that Thai investors already pay a 25-percent tax and the move was aimed at creating "equality".

The baht, which has appreciated around 10 percent this year, roared past the psychologically important level of 30 to the greenback last week.

The Thai currency edged up Tuesday despite the government's announcement, with the dollar slipping to 29.99 baht, from 30.05 late Monday.

"The market has pretty much priced in the moves and since the measure is unlikely to spur significant outflows, many players believe that the baht will continue to be on an uptrend," a Bangkok-based dealer told Dow Jones Newswires.

-- (c) Copyright AFP 2010-10-12

[animatic]

15% seems to remove the possibility of actual PROFIT.

Since these gains will then be again taxed in their home countries.

Ought to bring the cash inflows to an abrupt halt.

[exeter]

I am sorry to say that all government measures seem unable to resolve this situation, the only thing that works here is market forces and right now the baht looks a better bet than $, Euro and sterling. What may make a change is if those 3 economic regions get moving again. I look with anticipation at the UK measures due up shortly, will that lift sterling if its well recieved by the monetary community? The euro seems to be in a dire position with in reality Germany baling most of the rest out and there is the USA what will get them moving or have they spent tomorrows money yesterday? Maybe we should move our assets into the area, risky? Sure but everything seems risky right now the whole economic picture is on a knife edge and Thailand cannot influence any of that.

[britmaveric]

^they can with strict capital controls...

[OzMick]

15% seems to remove the possibility of actual PROFIT.

Since these gains will then be again taxed in their home countries.

Ought to bring the cash inflows to an abrupt halt.

I believe that in most countries a credit is given for tax already paid on offshore income.

[stuandchris]

My arse, why would they care? Mercs are cheaper for the haves as is all western goods.

Do you honestly think the haves care about the have nots in this country?

[Ekmeister]

My arse, why would they care? Mercs are cheaper for the haves as is all western goods.

Do you honestly think the haves care about the have nots in this country?

No, I don't. The haves usually don't care about the have nots in any country. In Thailand though, it's very obvious for anyone who's a little bit educated. The Bangkok Elite really seem to hate the rural poor and are often open about it to foreigners.

[CobraSnakeNecktie]

sooner or later. the economy requires a weak baht.... More factories and exports moving to Vietnam and China otherwise.

Notice the Yuan has only appreciated a fraction of the bahts rise. China has 10 times as many underemployed people as Thailand has people. They would love to grab that market share to improve their internal harmony.

Thailand is not quite ready to stand on its domestic economy... Maybe in a few cycles it could be as domestic as say a Brazil which is 60% domestic demand of its yearly GDP.

[givenall]

15% seems to remove the possibility of actual PROFIT.

Since these gains will then be again taxed in their home countries.

Ought to bring the cash inflows to an abrupt halt.

Will it also make the dollar stronger……NOT

[Xircal]

Unfortunately, history has taught us that market forces not politicians influence the stability of a country's currency. If currency speculators like George Soros are at work in the background, then the Baht will continue to appreciate regardless of what steps the BoT enacts.

Thailand is rapidly heading for a Catch-22 situation now. It's having to deal with rising inflation on the domestic front, yet cannot raise interest rates to curb that problem without sending the Baht into orbit once more.

Perhaps another devaluation is on the cards?

[RHCP]

The Government could do more such as reduce some of the high import tax duties to allow more Baht outflow and at the same time cut out the red tape for making overseas remittances.

[kennalder]

15% seems to remove the possibility of actual PROFIT.

Since these gains will then be again taxed in their home countries.

Ought to bring the cash inflows to an abrupt halt.

Well, maybe not. It depends a lot on what your own currency does relative to the Baht,

Even if you get no return on the bond the currency gains could easily make it a worthwile investment.

If you bought Baht with US $ even just 6 months ago, parked your baht in relatively safe short term govt. bonds, cashed them in now and took the proceeds back to the US, you would have outsized gains.

Even if your interest gains were taxed away to zero. (Probably won't be that bad.)

Of course currency trading is risky and the trend will stop one day, but for now, the US Govt and other Western Govts. are in a race to the bottom, so they can pay back their massive debts with devalued currencies.

I guess this won't help very much if at all to stop the rise in the Baht/fall in the dollar.

[cloudhopper]

Well, maybe not. It depends a lot on what your own currency does relative to the Baht,

Even if you get no return on the bond the currency gains could easily make it a worthwile investment.

If you bought Baht with US $ even just 6 months ago, parked your baht in relatively safe short term govt. bonds, cashed them in now and took the proceeds back to the US, you would have outsized gains.

Even if your interest gains were taxed away to zero. (Probably won't be that bad.)

Of course currency trading is risky and the trend will stop one day, but for now, the US Govt and other Western Govts. are in a race to the bottom, so they can pay back their massive debts with devalued currencies.

I guess this won't help very much if at all to stop the rise in the Baht/fall in the dollar.

Very nice analysis.

If the US and Thai central banks remain on this course then US resident expats can expect a double hit as their USD buys less THB and local prices in Baht continue to increase.

[Pib]

15% seems to remove the possibility of actual PROFIT.

Since these gains will then be again taxed in their home countries.

Ought to bring the cash inflows to an abrupt halt.

With the 15% tax applied to "interest and capital gains" a person can still make a profit. Say a person earns $1000 USD from X-amount Thai bond investment. After the 15% tax the person stlll has a $850 profit. And depending on the person's home country tax laws he may have to pay more tax or maybe none if he gets a offset of the foreign tax paid....either way he still ends up with a profit. If I remember right, the govt applied a 30% tax back in the 2006 time frame in trying to hold down the baht, but that did work too well/last too long either. I hope it works this time but I'm not holding my breath because of so many interrelated financial issues affecting a currency's value.

[chantorn]

The last time Bank of Thailand try to control the exchange rate, Thailand went belly up. 1997 I believe.

Let's try again.

[britmaveric]

^let's hope for 1997 again!!!

[cloudhopper]

^let's hope for 1997 again!!!

No chance.

[britmaveric]

Never say never mate - I've seen this happen before.

[chiang mai]

The last time Bank of Thailand try to control the exchange rate, Thailand went belly up. 1997 I believe.

Let's try again.

1997 was an opposite scenario from today, but don't let that small fact stop you from dreaming.

[chiang mai]

Never say never mate - I've seen this happen before.

Never!