"The financial crisis in 1997 happened because we didn't have a bond market for support. But the 30-per-cent capital reserve requirement imposed on the bond market would destroy the debt market in the long run and increase overall risks. The central bank should review this [rule]," he said.

The authorities should use a softer glove to choke off baht speculation, he said.

The TDRI, an independent think-tank, has suggested that the government reduce the 30-per-cent rate and let the measure cover both debt and stock markets.

Chalongphob proposed that the central bank eliminate the one-year minimum period for investors to hold their money here before they can get the reserve refunded because the measure needs to stay in place to curb speculators.

"I suggest they control both stock and bond markets without any timeframe of how long the funds would be invested in Thailand. But we need to withhold the reserve immediately by starting from a low level such as 2 per cent and then gradually increasing it. Too harsh a measure won't be accepted by the market. I think the central bank should review the measure to reduce its impact," he said.

Today Chalongphob, also an economic adviser to the interim government, will visit Prime Minister Surayud Chulanont to discuss the issue and will also submit his recommendations to the central bank.

The government last week imposed its harshest anti-currency speculation measure since it floated the baht in 1997. All capital inflows excluding investments in the stock market are subject to a 30-per-cent withholding. The reserve money is deposited in the central bank and bears no interest. Foreign investors can apply for the reserve money to be returned if they maintain their funds in the country for at least one year.

Chalongphob said there was no need to set a timeframe. The anti-speculation measure should be applied to all capital inflows.

The central bank should not discriminate among markets but should implement the anti-speculation measure across the board, in both the debt and equity markets.

The central bank should come up with a specific formula to control short-term capital inflows, such as by reducing the capital reserve requirement from 30 per cent to 2 per cent.

The measure should be re-

vised to be less severe and it

should be fairer to all markets. It should still allow Thailand to

benefit from short-term inflows. It should be flexible for future adjustments and serve as a tool of the Monetary Policy Committee

to control foreign exchange.

Nontaphol Nimsomboon, a member of Bank of Thailand's court of directors, said he had asked the central bank's executives about the 30-per-cent reserve requirement in the court of directors' meeting and warned them of the damage to the debt market.

Deputy Prime Minister Pridiyathorn Devakula insisted that the measure was effective and widely appreciated by business operators.

The baht has fallen from its nine-year peak of Bt35.06 to the US dollar early this month to Bt36.20-Bt36.50 early this week.

Pridiyathorn said the government would ensure that exports - the key driver of economic growth - would remain competitive.

"We have to fight to prevent the baht from getting stronger so that exporters can survive. If they can't fight, we have to make the baht as weak as possible. Everyone wants the baht to be as weak as possible," he said.

Anoma Srisukkasem

 The Nation