Capital Inflow Tax

[britmaveric]

I did say a crash was coming!! Perhaps not having baht right now would be wise.

[victorpfister]

Please help me. I do send every month 10 000 to my beloved girlfriend and her extended family. Do I have to send $ 14286 that she gets 10 000 in January 07?

Thank you for your support. I'm very worry.

[Taggart]

Dec. 19, 2006, 7:38AM

Thailand Lifts Investment Controls

© 2006 The Associated Press

BANGKOK, Thailand — The Thai government said it would lift controls on foreign investment in stocks after the market plunged nearly 15 percent on Tuesday, rattling regional bourses amid worries about a repeat of the 1997 Asian financial crisis .

Finance Minister Pridiyathorn Devakula said that the controls _ announced just a day earlier _ would remain on foreign investments in bonds and commercial paper as part of central bank's measures to stem the surge of speculative investment in the Thai baht, which had risen to a nine-year high Monday.

[taxexile]

the terms head in the sand , knee jerk , foot in mouth , blind leading the blind and tits up spring to mind.

[Taggart]

Thailand Abandons Lockup on Foreign Stock Investments (Update2)

By Suttinee Yuvejwattana and Margo Towie

Dec. 19 (Bloomberg) -- Thailand's government scrapped currency controls imposed on international investors one day after the central bank imposed them and sent the stock market plunging by the most in 16 years.

The government is removing a requirement that banks lock up 30 percent of new foreign-currency deposits for a year, Finance Minister Pridiyathorn Devakula said in Bangkok.

``The stock market has fallen too much today,'' Pridiyathorn told reporters at a press conference. ``This is the side effect of the central bank's measure, but we have fixed it already.''

Thai stocks erased $23 billion of their market value today after the central bank said international investors must pay a 10 percent penalty unless they keep funds in the country for a year. The currency controls triggered declines in other emerging stock markets by highlighting the risks of investing in developing economies.

The new rules would have limited international investors to using 70 percent of their funds to buy Thai stocks.

Pridiyathorn said the rules would remain in effect on other investments, including bonds and property.

``It's very untimely, it's unwarranted and it's badly thought-through,'' said Teng Ngiek Lian, who oversees $1.6 billion in Asian stocks at Singapore-based Target Asset Management in Singapore, before the measures were rolled back. ``If they don't quickly restore confidence, the damage can be quite bad.''

Thailand's SET Index tumbled 15 percent to its lowest since Oct. 29, 2004. The index sank 108.41 to 622.14. Morgan Stanley Capital International's Emerging Markets Index fell 12.14, or 1.4 percent, to 883.18 as of 8:25 p.m. in Bangkok.

International investors sold 25.1 billion baht ($699 million) more of Thai stocks than they bought today, the largest net sales since at least Jan. 4, 1999, according to data compiled by Bloomberg.

To contact the reporter on this story: Suttinee Yuvejwattana in Bangkok at [email protected]

Last Updated: December 19, 2006 09:11 EST

[taxexile]

``The stock market has fallen too much today,'' Pridiyathorn told reporters at a press conference. ``This is the side effect of the central bank's measure, but we have fixed it already.''

unbelievable .... the idiot is actually taking credit for solving the problem !

he'll be offering his resignation next.

[DrDweeb]

Thailand Abandons Lockup on Foreign Stock Investments (Update2)

By Suttinee Yuvejwattana and Margo Towie

Snip ...

Pridiyathorn said the rules would remain in effect on other investments, including bonds and property.

Snip ..

To contact the reporter on this story: Suttinee Yuvejwattana in Bangkok at [email protected]

Last Updated: December 19, 2006 09:11 EST

Whoops - still problems for the condo buyers it seems

Dweeb

[Taggart]

Thai government reverses control decision

Stock market's rout, worst since 1997, unsettles investors

y Ciara Linnane, MarketWatch

Last Update: 9:41 AM ET Dec 19, 2006

NEW YORK (MarketWatch) -- The government installed in Thailand after a military coup three months ago decided to reverse a central-bank decision on capital controls for foreign investors in the stock market.

The abrupt change came after Bangkok's benchmark SET index tumbled 15% overnight.

The Thai central bank on Monday unveiled measures that would lock up 30% of new foreign currency deposits for a year and said the measures would become effective Tuesday. The aim of the measures was to curb speculative inflows that have lifted the Thai currency, the baht, by about 17% against the U.S. dollar this year.

Finance Minister Pridiyathorn Devakula said that the controls would remain on foreign investments in bonds and commercial paper but would not apply to equities.

"The government has now reversed the decision after seeing the effect," said Forex.com, a division of Gain Capital.

The Thai sell-off spilled over into other markets in the region overnight and raised the specter of another Asian financial crisis. It was a run on the baht that triggered the 1997 meltdown across the region, roiling financial markets around the world.

Analysts and even local politicians had criticized the move, the first capital controls to be attempted in Asia since 1998.

"The Thai authorities could have attempted to slow the appreciation pressures from speculative capital flows ... by other means -- for example, by lowering interest rates," said Thomas Harr, analyst at Danske Bank.

The measures were "a step in the wrong direction and could have [had] a long-term negative impact on the Thai market, as there could be a loss of confidence in the Thai authorities' ability to control the economy," he said. End of Story

Ciara Linnane is markets editor for MarketWatch in New York.

[nikster]

hmm... apparently there were some rules for the stock market which caused the panic - which have now been rescinded...

http://biz.yahoo.com/ap/061219/thailand_markets.html?.v=18

http://money.cnn.com/2006/12/19/markets/asia.reut/index.htm

these seem to say that the rules to curb the rise of the baht stay in place, but there are exceptions for the SET something. a bit unclear.

maybe they take it all back and with the investor confidence rattled like this they get exactly what they want, a weaker baht

Edited December 19, 2006 by nikster

[LaoPo]

I'm sure the BOT+Government have earned a lot of respect yesterday+today from their counterparts all over the world....

They're the talk-of-the-town on all Christmas parties in the financial districts.

Message will be:

"Hands Off in Thailand with those fools overthere"

LaoPo

[Tompa]

C’mon, is Homer Simpson running the BOT??? How stupid can they get? Yeah, sure I want to invest into Thailand and lock up 30% of my money for 1 year. At least someone caught on tonight and basically reversed the stupid decision.

They only managed to cause about 23 billion baht worth of market loss value – great job!

Tompa

[Martin]

This will probably prove to be only a minor hiccup compared to the volatility we shall see on forex and stock markets next year.

The big underlying change is that the US$ is relinquishing its position as the world reserve currency, but nobody can see what will take its place.

The only currencies of countries that now have the underlying strength that America used to have (i.e. the Middle Eastern and Russian oil-exporting countries) are not big enough, nor dependable enough.

Every nation will worry about its currency being buffeted in the gale of volatility, and a 'little' currency like the baht, but serving a country with a large export component, particularly needs to have safeguards against 'hot' money flowing in and out.

The advocates of a 'Tobin tax' will be saying "Told you so". But no one country can implement such a tax (on the making of currency conversions) on its own. The BOT did the next best thing, and the stock market (as is more and more usual these days) over-reacted. Things should now settle down here, with a nice inhibition against the 'hot money' manipulators messing up the Thailand economy again.

It is an early sign that globalisation has peaked and started its decline, thank goodness.

[pnustedt]

This entire thread is riddled with over-reaction, crass generalisations and ill-informed panic.

A classic - it reminds me of the anicdote of the captain of the Titanic who is reputid to have said, at dinner when he received an overdone stake "and where is all that <deleted> water coming from?".

[hardy1943]

C’mon, is Homer Simpson running the BOT??? How stupid can they get? Yeah, sure I want to invest into Thailand and lock up 30% of my money for 1 year. At least someone caught on tonight and basically reversed the stupid decision.

They only managed to cause about 23 billion baht worth of market loss value – great job!

Tompa

COME ON GUYS IS ANY REALLY SURPRIZED ? Just another day in the land of MAI BIN RAI

[Pappiklon]

Quote:

Although stock market transactions will be liberalized, the restrictions remain on bond and money markets.

This would seem to me to indicate that there has been a U turn regarding money coming in to buy shares on the SET but for everything else the 'witholding tax' is still effective.

In relation to my earlier post regarding my need to bring in 2million baht for my condo refurb, I went along to Bangkok Banks Head Office this morning to try and get some facts, the staff there were very helpful and went and got me the 'expert'. She told me they had been calling the Bank of Thailand all morning but couldn't get through, and in the end had reverted to emailing them. She said they didn't know what was going on and it was 'a mess'. She took my phone number and said she would call me when she had more information from BOT. Couple of hours later she called and told me my 2m for refurb would be subject to the withholding tax. I asked again if the fact I could show invoices for the builders services would exempt it, she said no. I asked her how else I could bring the money in, she told me incoming Baht transfers (ie buy the baht abroad) were not within the scope, or I could transfer in tranches of less than $20,000 per time, I asked her how often I could do the transfer, monthly, weekly or daily. I was told even doing it daily it should be alright. Now being a bit of a sceptic I would not take that last line as gospel. My intention is to transfer in approx $19000 , wait a bit and do it again.

In the meantime will call the bank again on Wednesday to check the facts.

[Taggart]

The Economist

Thai markets rout

Dec 19th 2006 | BANGKOK

Thailand’s curbs on currency speculators caused such a slump on its stockmarket, and jitters across Asia, that its authorities have been forced into an embarrassing climbdown

FOR most of this year, South-East Asian countries have worried that the strength of their currencies is making their exports pricey at a time when the economy of America, their biggest trading partner, is looking weak. The dollar’s recent fall has only made things worse. Thailand’s baht has been especially strong of late, and its central bank has twice—in early November and early December—introduced measures to discourage speculation. They did not work so, on Monday December 18th, as the baht briefly touched its highest level in over nine years, the central bank announced draconian restrictions on currency trading. However, on Tuesday the authorities were forced to beat an embarrassing retreat after their measures triggered a rout on the Bangkok stockmarket and sent shockwaves across Asia.

Under the first version of the rules, anyone selling more than $20,000-worth of foreign currency, other than for the purposes of trade, would have had to deposit 30% of it with the central bank—at zero interest—for one year, or forfeit one-third of the deposit. They certainly had the desired effect on the baht, which dropped around 2% on Tuesday. But the panic they caused among stockmarket investors was surely unintended. The resulting plunge in share prices was worse even than anything seen in the 1997 Asian economic crisis. At one point, Bangkok’s SET index had lost almost one-fifth of its value. It closed almost 15% down, at its lowest level in two years. On Tuesday evening, the government, heeding the stockmarket’s squeals, backed off and said that stockmarket investments would be exempted from the currency controls, though not other non-trade investment.

The Bangkok market’s fall prompted selling in other emerging markets, especially in Asia: Indian and Indonesian shares fell by almost 3%, the Singaporean and Malaysian markets lost around 2% and ripples were also felt in the Philippines and Hong Kong. Though there was no indication that other countries intended to follow Thailand’s lead, its move was bound to provoke worries that the trend towards market liberalisation, seen since the 1997 crisis, could go into reverse. The military-appointed interim government that has been running Thailand since September’s coup has pledged to maintain free-market policies but the currency restrictions, whatever the justification for them, run counter to such promises.

Only a few hours before announcing the climbdown, the finance minister, Pridiyathorn Devakula, predicted that shares would quickly rebound. Some analysts were, however, forecasting that the stockmarket would fall further. It remains to be seen if investors will be reassured by the government’s backtracking, or if the rapid reverses in policy will only succeed in scaring them more.

The confusion over the currency restrictions is not the only thing to give potential investors in Thailand pause for thought. An investigation into Shin Corp, the telecoms business sold to a Singaporean government agency by the deposed prime minister, Thaksin Shinawatra, has raised doubts about the legal status of many foreign-owned firms in Thailand. Tesco, a British retailer, has been pressured to slow its Thai expansion drive, following protests by small shopkeepers. Above all, it is still unclear how stable and how market-friendly a government will emerge once elections are held, around a year from now.

It is ironic that Thailand has felt obliged to punish currency speculators just a few days after Malaysia’s former prime minister, Mahathir Mohamad, met and publicly forgave George Soros, the currency trader he had personally blamed for the ringgit’s collapse in the wake of the 1997 crisis. Mr Mahathir responded to that collapse by pegging the currency to the dollar (a measure which was only lifted last year) and introducing strict capital controls—measures seen as unorthodox at the time but since credited with helping Malaysia recover.

The tenth anniversary of the Asian crisis is approaching but, despite the jitters caused by Thailand’s currency restrictions, there are also plenty of reasons for investors to feel reassured that a similar regionwide meltdown is unlikely. Thailand and its neighbours are these days running strong current-account surpluses, their public finances are mostly in good order and they have hefty foreign-exchange reserves with which to defend themselves from speculative attacks. Their banking systems—one of the main concerns in 1997—have since been largely cleaned up.

Even so, ill-chosen or poorly explained policies can do damage—especially if the authorities lose further credibility by being forced to backtrack on them. The aim of the Thai central bank’s new controls was to ease exporters’ discomfort and preserve the country’s attractions to export-oriented industries. But they seem, so far at least, to have created uncertainty and fear, and thus risk undermining investment at a time when the competition from China, India and an also-rising Vietnam, is getting stronger.

[LaoPo]

The Economist

Thai markets rout

Dec 19th 2006 | BANGKOK

But they seem, so far at least, to have created uncertainty and fear, and thus risk undermining investment at a time when the competition from China, India and an also-rising Vietnam, is getting stronger.

About the same words I used earlier; the point is if the big shots in BKK understood what they did and accomplished.

I doubt it.

LaoPo

[sfokevin]

So I am confused!.... Is the entire sky falling or will 30% still be held in reserve?....

[llothar]

I stopped reading all the postings after page 4, but is it only me who thinks that this is a good deal, for me and for thailand ?

In fact the ups and downs of 10% or 20% on the stock market don't have a huge long term impact, but a 1997 scenary where speculators are attacking again could make the situation much worse.

I know this is a US dominated forum and so too many people think that free markets are good, i don't agree with this point of view. The 30% rule is a good compromise.

In a few month we will see who was wrong and who was right. I will remember a few of you then about there postings here.

[Taggart]

Financial Times - UK

Editorial Content

Capital controls could prevent baht take-off

Published: December 19 2006 02:00 | Last updated: December 19 2006 02:00

Thailand's decision to impose controls on capital inflows should be little surprise. Its dilemma is one often faced by emerging markets: how to keep the exchange rate down to prevent a loss of external competitiveness when the rest of the world wants to invest in your country. None of the policy responses are fully satisfactory. Unfortunately, the most effective solution rests not in Bangkok, but Beijing.

The Thai economy has recently been stronger than expected. Growth will probably exceed 5 per cent this year and next, up from 4.5 per cent in 2005, in spite of September's potentially destabilising military coup. This economic outlook has attracted strong capital inflows, with the baht appreciating by 16 per cent against the dollar this year, to reach a nine-year high.

Fearful of losing competitiveness, the Bank of Thailand yesterday imposed capital controls. Thirty per cent of new inflows will have to remain in the country for at least a year, at no interest rate, or suffer a 33 per cent penalty on withdrawal. It is hoped that the restrictions will curb the capital inflow and prevent further baht appreciation.

In these conditions, controls are the least bad policy response. One alternative would have been for the Bank of Thailand to ease monetary policy and lower interest rates. But this would have created domestic inflation, which is already running high at more than 4.5 per cent. Another alternative would be to intervene in foreign currency markets, but that would also have risked higher inflation. Yet another would be for the government to run a tighter fiscal position. But this would penalise the domestic economy over what is largely an external problem.

The new penalty will act as a short-term tax on new inflows, pushing capital away from Thai assets. Because the penalty only applies for a year, the impact will be at least as much to lengthen the maturity of the capital inflows as reduce their scale, thereby reducing the currency's vulnerability to a turnround in the capital flows. Chile tried a very similar strategy during the 1990s. It seems to have paid off, mainly in this way.

Other countries in the region are likely to be tempted to follow Thailand's example. But a more sustainable long-term solution would be to eliminate the exchange rate distortions in the region. After the regional economic crisis in 1997, many Asian economies introduced a degree of currency flexibility along with large-scale foreign reserve accumulation. But Thailand's most important competitor, China, has done little of the former and a vast amount of the latter.

As long as China maintains its currency closely pegged to the dollar, its competitors risk suffering large losses in competitiveness whenever their currencies appreciate. Unfortunately, there is little Bangkok can do about this. Even the mighty US has been unable to persuade China to alter course.

Copyright The Financial Times Limited 2006

[falux]

I love to see how Thais screw themselves by trying to screw Farangs. But the super joke is Farangs letting themselves be screwed.

[fiddlehead]

Well, my usual luck strikes once again. I just transferred $24,500 2 days ago to my Thai Bank account, so that i could apply for the non-immigrant "O-A" visa. not only did i hit the bottom in the exchange rate, but now see that they may try to take 30% of my money also.

I am trying my best to jump thru all these hoops that have entered my life with the Thai goverment. It is almost impossible to do everything they want and now this. (Money must be in a THai bank at least 90 days before applying for the one year in thailand, but you must apply within 90 days! 2/ the Thai consulate here in the US now says that the money must be in a US bank with proof and notorized> Yak MACH!

So, what to do now? I will let this forum know tomorrow how much of the 24,500 gets put into my bank account as my wife (in Thailand) is going to call me tonight with the figure.

This is crazy and getting crazier. I could go on and on with how my luck has been working on the paperwork for this visa but you probably would think i'm sensationalizing. Oh well. How many more rules and hoops will I attempt before they break me?

[lukamar]

I just have to laugh at it all.. Although not a lot of people liked Thaksin he did know how to keep the Thai economy afloat and vibrant. That's the difference with a businessman running the government and someone that is probably best suited to marching in unison and taking orders. If Thailand does not get back to an freely elected government and stop all this madness soon, it will find itself in a very deep hole that will take years to rectify.

[sfokevin]

Fiddlehead look on the bright side... you did not invest your $24,500 in the Thai stock market

[besth]

What about taxing profits on the SET? or any other profits, including real estate speculation?

Am I wrong to reacall that some big shot created quite a bit of trouble when he sold many shares to a company that wasn't Thai?

[lucky2103]

Got the update: The central bank backpedaled on their own measures imposed a day before red faced.

So is the Baht set to rebound today ?

[suk22fool]

Some of us were smart enough to be BUYING on the market yesterday...

[jumnien]

In the US, investors are taxed at rates up to 40% on investments in equities held less than one year. If they keep their investment more than one year, the proceeds are taxed at 15% capital gains tax. Isn't Thailand falling into the same trap the US has put itself into by discouraging short term investment?

[Taggart]

Bangkok Post

Wednesday December 20, 2006

Foreign fund managers blast curbs on capital inflows

UMESH PANDEY

Foreign fund managers expressed shock yesterday at central bank capital controls intended to help stem the speculative nature of funds flowing into the country. ''This is a kind of thing that is not good for investor sentiment, and you have sent the whole market out of whack,'' said Mark Mobius, the president of Templeton Emerging Markets Fund Inc, who is considered a guru of emerging markets.

''The move by the central bank has sent Thailand to never, never land.''

Although his firm had divested its Thai portfolio, he said, it was looking at further selling if opportunities came up.When asked if Templeton would want to take the market slide as an opportunity to buy cheap, he said: ''No way.''

''Who in their right mind will want to put themselves in prison?'' he asked rhetorically. ''You take the money in and it will be locked in for one year. How can an open-ended fund operation like ours participate in this kind of market?''

Other investors echoed his comments, saying that the reaction of the central bank was too strong for curbing speculation.

''I think they are trying to kill foreign investment,'' said a fund manager based in Singapore. ''The move is not helping bring in new capital into the country.

''It may be good for the long term, which we don't know about, but for the short term, it's a disaster.''

The move, which prompted the stock market to use its circuit-breaker mechanism for the first time since its establishment in 1975, has been widely criticised as too strong for the market.

''They have totally screwed the system up,'' said Mark Greenwood, a former broker in Thailand and an investor in the Thai equity markets. ''There were other ways of managing the speculative element, but they went for the harshest one.

''What they have done is to try to kill an ant with a sledgehammer.''

Reaction to the central bank move was so strong that investors panicked and sold heavily. Foreign investors took the lead in getting out of the market yesterday.

''There are still a lot of clarifications that are needed, and in our view the Thai baht has been undervalued for some time, especially when considered on a purchasing power parity basis,'' Mr Mobius said.

''Even now it is undervalued by about 10%,'' he added.

To add salt to the wounds, it is expected that global index compliers such as MSCI Barra and FTSE will look at the possibility of removing Thailand from their weighting lists, which could trigger further selling by fund managers who follow the indices.

''I would not be surprised if Thailand is removed and if it does happen, that would mean more selling pressure as those that follow would need to shed their investment in the country,'' said a foreign broker.

Most fund managers and analysts believed better measures existed to curb speculative inflows rather than such harsh ones that tax everything, with nothing to differentiate speculation from genuine investment.

''They could have reduced the interest rate, or could have sold baht or other measures to help stop speculation. But this was too strong a move and it is evident by the reaction of the market,'' Mr Mobius said.

[Taggart]

Bangkok Post

Wednesday December 20, 2006

Foreign investment expected to plummet

New capital controls could hurt sentiment

POST REPORTERS

New capital controls imposed on foreign inflows are expected to cause a sharp decline in new foreign investment over the next several months, according to local experts.

Kittipong Urapeepatanapong, a partner at the law firm Baker & McKenzie, said mergers and acquisitions (M&A), bond issues and project-finance deals would all be affected by the new rule.

''Customers are confused over whether they should ask permission from the central bank to bring in their funds to invest in deals which are pending,'' he said.

Mr Kittipong said authorities should clarify how the new measure would be implemented and take selective action based on the purpose of individual investments.

''Controls on stocks, M&A and bonds should not be the same. Investors with underlying deals should be allowed to defend themselves if they want to bring back money before one year,'' he said.

The central bank said the new rules would not undermine capital flows with underlying trade or investment transactions, and that refunds of the 30% reserve would be made promptly once documents were screened.

But market experts and investment bankers said the new rule would inevitably hurt investor sentiment in the near term.

Maris Tarab, the president of the Association of Investment Management Companies, said even long-term investors would likely shy away from the market given the higher costs.

''I dont think any foreign fund manager, even in long-term funds, will want to accept higher investment costs by locking up 30% of their funds with the central bank. They will lose a chance to generate interest income even if they can refund their deposits one year later,'' he said.

Foreign investors are expected to avoid the Thai market out of fear of having their funds locked up.

''[The market sell-off] wasn't because the message wasn't clear. [Foreigners] understand the measure well, they just don't want to accept the higher risks,'' Mr Maris said.

He noted that many investors saw their gains for the entire year wiped out by the sharp losses in the market yesterday.

''It's a surprise from this government. But really, the concept of the sufficiency economy can go together with the free market. It's hard to understand why this measure was taken,'' Mr Maris said.

One company counting its fortune is the mobile-phone operator True Move, which completed a $465-million issue of bonds due in 2013 earlier this month.

True Move chief executive Supachai Chearavanont said the measure had no impact on the company's refinancing.

''We're actually quite lucky that we closed the deal before the measures were announced,'' he said.

''I actually believe that the government intended well with this measure. But it should have been better targeted to focus on currency speculators, rather than all foreign investors.''

Atip Bijanonda, deputy managing director of the listed developer Supalai Plc, said the new measure would impact new direct and indirect investment in the property market.

''Fortunately, this measure comes at the end of the year when overseas investors have wound down activity. It might have had an even greater impact if the measure was announced early next year,'' he said.