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Thailand won't lift capital controls

Section: Daily Dispatches

From The Associated Press
Monday, January 8, 2007

Thailand has no immediate plans to lift remaining capital controls imposed last month to curb the baht's appreciation, the central bank governor said Monday amid growing calls from foreign brokers to ease the restrictions.

Bank Gov. Tarisa Watanagase told reporters that the bank was considering revisions of "minor" measures but that the baht's relative stability since controls were imposed Dec. 19 shows that the much-criticized move was effective and necessary for the time being.

Thai shares plunged nearly 15 percent Dec. 19 after the central bank announced regulations restricting foreign capital inflows to stem the baht's surge, which was hurting exporters. Authorities quickly lifted the controls on foreign stock investments but retained those on bonds and other debt instruments, prompting the benchmark stock index to bounce back 11 percent the next day.

The controls require banks to lock up 30 percent of new foreign-currency deposits intended to buy bonds and to impose penalties on those held for less than a year. The bank governor has said the rules are expected to stay in place at least three to six months.

"We are not considering revoking or easing the 30 percent withholding," Tarisa told reporters, adding that the central bank "may soon decide to give up some minor unnecessary measures."

Separately, the Federation of Thai Capital Market Organizations, or Fetco, said it will urge authorities to ease or entirely remove the 30-percent rule.

The measure makes it difficult for Thai companies to raise capital because it discourages foreign investment, Fetco Chairman Kongkiat Opaswongkarn told reporters after a meeting with 10 foreign brokers.

Marco Sucharitkul, president of JPMorgan Securities (Thailand), said foreign investors viewed the 30 percent withholding requirement as an obstacle to entering Thai markets, and they hope the central bank will cancel the measure.

Tarisa said that capital flows have been limited since the withholding rule was introduced, resulting in more stability for the baht. She said the baht is starting to move back in line with regional currencies after surging 14 percent against the dollar last year.

The U.S. dollar ended trading Monday in Bangkok at 35.92 baht, little changed from 35.97 Friday. Last month, the dollar hit a nine-year low of 35.09 baht.

The Stock Exchange of Thailand index increased 0.9 percent Monday, closing at 633.82 points, on rumors that the Bank of Thailand would ease the withholding requirement.

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