Certain criteria will be applied to identify foreign borrowing for investment, including companies' hedging for currency risk.

She said the central bank was discussing with commercial banks to find ways to distinguish between inflows for real investment and hot money coming in for currency speculation. "The method" of bringing in the money is the way to differentiate the purpose of the inflows, she said.

For example, inflows hedged immediately to cover currency risk, which would not affect the baht movement, would be allowed a waiver of the 30-per-cent reserve. The type of inflows indicates the exact purpose for investing directly in the Kingdom.

"We must identify the capital inflow before finding which method would be the most convenient to adopt. Then, companies will be able to bring in borrowed capital into the country without any reserve requirement," Tarisa said.

The relaxation was announced yesterday by the central bank after large corporations, including PTT and Toyota Thailand, loudly complained they had to bear higher costs of funds from foreign borrowing, due to the 30-per-cent reserve requirement.

The PTT Group reconsidered its sources of funds for an investment plan worth Bt200 billion after the central bank required all foreign loans to be subject to the 30-per-cent withholding requirement. This means it must shoulder full interest payments but cannot spend all of the loans.

However, the central bank recommended the company put the borrowed funds that will not be spent soon into a foreign-currency deposit (FCD). The deposits will not be required to comply under the 30-per-cent rule until they are converted into baht.

Tarisa said the hedging of foreign currencies by companies was one of many ways to prove the intention of investors in using the money they bring into the Kingdom.

"We cannot accept speculative capital that circulates money on a daily basis. Lending for real investment would not go in and out so rapidly," said the governor.

Meanwhile, the central bank yesterday also allowed Thai companies to bring out funds more easily for both lending and investing, in order to facilitate foreign-currency management and increase competitiveness in the international market, said Suchart Sakkankosone, director of the Financial Markets Operations Group.

Thai companies are allowed to invest or lend a sum not exceeding US$20 million (Bt719 million) a year to their parent companies without permission. Earlier, they were required to ask for an approval on a case-by-case basis for all amounts of lending. Suchart said the ceiling was set based on past data, because many Thai companies had had retained earnings high enough to lend to their parent firms.

 In addition, Thai companies owning more than 10 per cent of foreign companies may now directly invest or lend a sum not exceeding $50 million a year, compared with the previous requirement of $10 million.

At present, seven types of institutional investors, including securities companies, are allowed to invest in foreign securities abroad without any sort of permission, if the amount of the investment money does not exceed a combined $50 million at the end of the year. Unlimited investment in Thai securities abroad is allowed.

Suchart said the ceiling was set based on the proper level for the break-even point the investors have to pay for fund managers.

In addition, Thai companies are permitted to put foreign currency in FCDs without any clarification of the purpose for the money for sums not exceeding $50,000 for an individual and $2 million for a company.

They can put foreign currency in FCDs with clarifications for sums not exceeding $500,000 for an individual and $50 million for a company.

Anoma Srisukkasem

The Nation