Foreign investors bringing in cash worth US$20,000 or more (approximately Bt700,000) would need to park 30 per cent of the amount in financial institutions. The money would be fully returned if the cash was taken out of the country after one year, the Bank of Thailand announced yesterday.

The 30-per-cent reserve requirement on capital will take effect today. Thus, foreign investors who bring in more dollars than the amount would only be able to exchange 70 per cent of their money into baht.

The reserve would be returned to them after 12 months.

Tarisa Wattanagase, the central bank governor, said at a press conference yesterday the measure would help curb speculation that has made the baht volatile and appreciated above its fundamental level.

"We think this measure will help slow down the short-term inflows as it would increase costs for speculators," Tarisa said.

Yesterday's move is the most stringent since 1997 to counter baht speculators, who have brought in billions of dollars in the past few months and pushed the baht to a level that has damaged Thailand's exports.

Last month, there were short-term inflows of US$300 million per week - that had tripled to $950 million per week this month, she said.

Yesterday, the baht shot up to a nine-year high - Bt35.06 - 16 per cent stronger than the value of the baht at the beginning of this year (Bt41). The Thai unit opened at Bt35.21 to Bt35.25 to the dollar before closing at Bt35.30 to Bt35.35 after news of the BOT's new measure. The measure will not apply to foreign direct investment (FDI), as the reserve would be returned to investors as soon they arrive in the Kingdom. Exporters and Thai investors paid out of their foreign investments would also be exempted from the move.

Foreign investors who bring in more capital than the criteria level and take it overseas before the end of one year would only be entitled to two thirds of the 30-per-cent reserve, or they would be charged 10 per cent of total capital inflow by Thai authorities.

The central bank has threatened to introduce more measures if the baht speculation persists. The speculative inflows have pushed the Thai currency up by 16 per cent so far this year.

Tarisa said the 30 per cent was calculated from profits expected to be generated by speculators. She said the new measure would effectively discourage speculative inflows and reduce baht volatility.

However, the central bank would closely monitor the baht after the measure is launched today. She said the central bank might cancel the measure, change the reserve amount, or change the time limit depending on the situation.

As a result, it is uncertain how long the measure will last for.

The governor also ruled out tax moves to tackle baht speculation, saying there was no need. Such moves too much time to introduce and were less flexible than the reserve measure.

Under the measure, financial institutions that withhold the reserve from foreign investors must submit the sum to the central bank on the 7th of every month. The BOT would make use of the capital to generate further returns.

Tarisa said the move may also affect the debt market but the BOT did not want to see speculative inflows in the debt market either.

Tarisa said several countries had implemented this measure to curb currency speculation. Chile used the 30-per-cent reserve for capital inflow for less than six months before cancelling the measure.

She insisted it was not against development of the capital market.

Meanwhile, Deputy Prime Minister and Finance Minister MR Pridiyathorn Devakula said before the BOT announcement that the new measure was positive news for exporters and investors. He admitted that the baht had been far too strong.

Anoma Srisukkasem

The Nation