Thailand Lifts Investment Controls
Tuesday December 19, 8:59 am ET
By Michael Casey, Associated Press Writer
Thai Government Lifts Controls on Foreign Investment After Market
Plunges 15 Percent

BANGKOK, Thailand (AP) -- The Thai government is lifting 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 versus the dollar on Monday.

Investors dumped stocks in Hong Kong, India, Indonesia, Malaysia, South
Korea and the Philippines amid contagion concerns that the plunge might
to spread through the region and trigger the kind of slump that
enveloped Asia nearly ten years ago.

The Stock Exchange of Thailand's benchmark SET Index closed down 14.8
percent at 622.14, after plunging as much as 19.5 percent earlier.

It was the market's biggest one-day drop ever, and brought the
benchmark index to its lowest since October 2004. The hardest hit
sectors were banking, energy and telecommunications.

The plunge came after the Bank of Thailand late Monday announced its
toughest measures yet to clamp down on speculative inflows that have
lifted the Thai currency, the baht, to a nine-year high of 35.09 to the
dollar.

The measures said that starting Tuesday, all banks were required to
hold in reserve for one year 30 percent of capital inflows that aren't
trade- or services-related, or repatriation of Thai residents'
investments abroad. Also, foreign investors must pay a 10 percent
penalty unless they keep funds in the country for a year.

Effectively, the central bank's rules meant that if a foreign investor
allocated the equivalent of 100 million baht to the Thai bond market,
the investor could only buy 70 million baht of bonds, while the
remainder would be withheld by the central bank, earning no interest.

If the investor wanted to withdraw the money in less than a year, only
two-thirds of the amount withheld would be returned, an effective 10
percent tax on the initial investment amount.

The moves spooked international investors, who viewed the measures as
drastic and dimming the allure of Thai stocks.

David Cohen, chief of Asian economic forecasting for Action Economics
in Singapore, said the worries may be unfounded because the situation
in Thailand now is fundamentally different from the events surrounding
the 1997-98 Asian financial crisis.

The big problem ten years ago was currency weakness; now, it's currency
strength.

"I would emphasize the contrast to the situation in '97 and '98. The
measures the Bank of Thailand felt obliged to impose were to resist the
appreciation of their currency," Cohen said.

Ben Kwong, chief operating officer at KGI Asia in Hong Kong, said
regional economies are now "relatively healthy" compared to 1997.

"The situation is different now. Many regional economies have achieved
more balanced accounts and currencies are likely to go up, not down,"
he said.

The Stock Exchange of Thailand on Tuesday had called for the central
bank to review its decision to impose new rules aimed at weakening the
baht, saying the move prompted foreign investors to dump Thai shares.

But the Bank of Thailand said the drastic measures were necessary
because the pace of net investment inflows had increased to $950
million in the first week of December from $300 million per week in
November and a total of $13 billion in the first 10 months of the year,
as hot money flowed in for a one-way bet on the direction of the baht
against a fading dollar.