The relaxation will apply to loans that companies in Thailand borrow from their parent companies abroad and loans that companies borrow from abroad in general.

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.

She said each country should build up resilience for its eco-nomy in the long run, in order

to allow the economy to react to

a changing environment effectively. International observers already realise that many measures, including capital controls, are needed under the difficulties of a global economy.

"After believing in market mechanisms for a long time, the world has come to realise that capital controls are necessary for some countries under some circumstances," she said.

The Malaysian government was seriously criticised after introducing capital-control measures during the 1997 economic crisis, because that went against international market mechanisms as championed by economic theory.

But she said recent cooperation by the International Monetary Fund (IMF) with some countries on a voluntary basis, including the US, Japan and China, had already led to a dialogue with which to find ways to correct current global imbalances.

However, some market watchers claim the IMF, influenced by the US, may prefer an appreciation of the yuan, in order to correct the twin deficits in the US. Investors have escaped from depreciating assets in the US and are investing in the assets of Asian countries. This causes Asian currencies to move north continuously.

The baht yesterday opened at 35.91 to the US dollar, 0.25 per cent stronger from Tuesday and 0.45 per cent from the end of last month. It also appreciated against the yen and the euro.

Anoma Srisukkasem

The Nation