The incoming chief of the government's economic team warned that volatile capital movements would last until the end of next year. Related parties must keep economic fundamentals strong and stability on track to restore foreign investors' confidence, he said.

"Foreign investors in the stock and bond markets can sell out anytime, so we have to prepare for that. The capital will not flow out rapidly if the fundamentals are strong," Pridiyathorn said.

He said country's international reserves of US$60 billion (Bt2.2 trillion) was enough to cope with any significant capital flight. That would even be true in the worst-case scenario of the country's entire $16 billion in short-term external debts and $30 billion in foreign funds in the stock market flowing out.

 "Short-term foreign debts accounting for one-third of the total reserves do not exceed our capability to handle the situation. Reserves of only $30 billion are actually high enough to tackle this but inflows into the stock market and bond market have increased reserves," Pridiyathorn said.

The governor said he was optimistic that foreign investors would not withdraw all of their funds from the stock market and recall their short-term loans as long as the Kingdom's economic fundamentals remain firm. The reserves will not fall to as low as $800 million like they did in July 1997 when the financial crisis hit.

Instead, Pridiyathorn predicted that capital would continue to flow into the country until the end of next year because Asian economies remain attractive.

The Kingdom has experienced capital inflows since last December. A record high of $10 billion was recorded between last December and April.

But in the middle of the year, around $2 billion left the country as foreign investors were concerned that Asian countries would be affected by the US economic slowdown.

Pridiyathorn dismissed a rumour that former prime minister Thaksin Shinawatra had created three foreign funds to attack the stock market in order to discredit the current government and that the central bank governor had demanded that many Thai funds to fight back.

"I let the market function freely but I have found that foreign investors are net buyers. They are confident in our strong economic fundamentals and low PE (price-to-earnings) ratio," he said.

Stock Exchange of Thailand Chairman Vijit Supinit also said yesterday that foreign investors' net sales of Thai shares between September 9 and October 4 were not made to discredit the new government.

"Unloading shares at the moment might not create any benefits to funds because they might lose out as a result. I believe that their net sales can be attributed to them shifting their investments to snap up initial public offering shares of China's ICBC (Industrial and Commercial Bank of China) - the largest IPO deal in Asia," he said.

A foreign fund manager source also dismissed reports that ousted prime minister Thaksin has set up a fund to dump Thai shares.

"According to the brokerage industry's estimate, Thaksin's family has around $1 billion overseas and this cannot do anything. The money is a small amount compared with medium-sized hedge funds of around $4 billion and large ones of $20 billion," the source said.

The source said the proceeds from the Shin Corp sale would remain in the country and that Pridiyathorn would closely monitor any movement in the money.

As for the possibility that Temasek Holdings of Singapore will join hands with Thaksin, he said the issue was groundless because discrediting the new government would only damage its holdings in Thailand.

Thailand accounts for around 4 per cent of Temesek's investment portfolio.  

Anoma Srisukkasem

The Nation