The result of this is the collapse of the Thai stock market. More than Bt800 billion in wealth was wiped from the stock market on Black Tuesday alone amid panic selling unseen in the Thai history.

However, Pridiyathorn moved quickly to repair the huge damage by announcing yesterday that the authorities would exempt capital controls on equity investment. Indeed, the banking authorities had not thought it through when they introduced wholesale capital controls without taking the equity market into account.

It is true that Thailand is facing economic trouble from the intense baht speculation. If unchecked, the baht could move up to Bt31Bt32 against the US dollar to bankrupt Thai exports, whose margins have been badly squeezed by the stronger baht. Since the beginning of this year, the baht has jumped from Bt41 to Bt35, the highest level in the region.

A former Bank of Thailand official said the banking authorities should have imposed selective controls on the money market to tackle the baht speculation at the source.

Foreign institutional investors and money managers have been pouring their investments into the baht bond market in order to make profits from the high interest rate of 6 per cent and the baht's upward trend.

Over the past three months, some Bt100 billion of foreign money has been flowing into Thailand to invest in the shortterm paper to speculate on the baht's rise. In December, some US$1 billion a day has been flowing into Thailand.

"If they wanted to quash speculation, they could have introduced the measures at the money market. But instead they have imposed capital controls on capital inflows without any discrimination," said the former Bank of Thailand official.

With the indiscriminate practices, foreign stock investors can only unload their investment portfolios. But that does not mean money is flowing out of Thailand like the 1997 financial crisis.

"Just wait and see, I don't think the baht will weaken like the banking authorities are hoping because money is not flowing out of the country. The foreign money, invested in stocks and bonds, is still locked in the country. Once the foreign investors have sold stocks, they go into the bond market instead of further speculation.

"If the maturity of the bonds expire, foreign investors will continue to roll over their investments. If the banking authorities are smart, they should have imposed the selective controls against the speculation in this money market," the former BOT official said.

Understandably, between the stock market and the export sector, Pridiyathorn would have to protect the export sector, which is the engine of Thai economic growth. But the stock market, which he intends to let go for the moment, also represents the wealth of the nation.

Broadly speaking, foreign money flowing into Thailand goes into foreign direct investment, the equity market and the money market (for example, baht bonds, nonresident accounts). The Bank of Thailand has introduced a shock therapy to ward off the baht speculation by requiring foreign investors to put 30 per cent of their total investment as a reserve requirement into a noninterest bearing account of the central bank.

If the investors take their money out within one year, they will only get 20 per cent of the amount while the remaining 10 per cent will go into the central bank's coffers.

Under this measure, foreign investors face a double jeopardy: they can only invest 70 per cent of their money brought into the country; and if they keep their money in Thailand for less than one year, they will be subject to 10 per cent withholding tax.

Korn Chatikavanij of the Democrat Party has called for the banking authorities to reverse the capital control measure before it is too late.

"The capital control measure will destroy the stock market," he said late yesterday.

"First, foreign investors will not bring in money to invest in Thai stocks if they can invest only 70 per cent of the total amount," Korn said.

"Second, some foreign institutional investors are obliged to sell Thai stocks because they have their own rule that they will not invest in a country with capital controls."

A source at a US investment banking house said: "This is what we call credibility damage. We never thought they would think in this short term and bureaucratic way. Already, foreign investors are concerned about the issues of nominees. Now it seems there is no direction in this country."