Suchart Sakkankosone, a Financial Markets Operations Group director, said the eligible companies whose foreign borrowings would be waived from the 30-per-cent reserve requirement were those that could show loan contracts specifying what the money would be used for.

In addition, companies whose foreign borrowings are 100-per-cent hedged to cover currency risk will also be waived from the draconian reserve requirement. The fully hedged foreign borrowings once converted into baht will not affect foreign-exchange movement. The central bank said it was currently considering whether to provide the relaxation of the rule to foreign borrowings that were not fully hedged.

BOT Governor Tarisa Watanagase insisted late on Tuesday that withholding capital was not a permanent measure but could not specify how long until it would be revoked, because that depended on whether the central bank succeeded in its objective of stabilising the baht.

She declined to say whether the central bank would slash the ratio of reserve requirement as done by the Chilean government. Market observers expect that the BOT will closely follow the footsteps of that South American country instead of revoking the measure instantly.

Tarisa also insisted that the Thai central bank could not stabilise the baht under a full functioning of market mechanisms during a short-term period.

She said the unremunerated reserve requirement had been increasingly acceptable among foreign investors who understood the different circumstances in each country.

The Nation