The baht surged in the onshore market to 34.80-34.83 after opening at 34.89-34.92. It closed at 34.85, compared to 34.92 on Friday.

Finance Ministry spokesman Somchai Sujjapongse said there was a need to find ways of allowing capital to be invested abroad in order to help make the currency depreciate, bugging the current trend towards a stronger baht. There is a need to study obstacles that prevent capital outflows, he said.

At present, import figures are quite low, but they are expected to improve as business operators' inventories dwindle.

Bank of Thailand (BOT) senior director Pongpen Ruengvirayudh said the baht's current strength had resulted from exporters selling out their dollar incomes every day.

BOT Deputy Governor Atchana Waiquamdee believes that the market mechanism will correct itself when the baht has strengthened to a certain level. Debtors may then rush to repay their foreign debts and importers will buy dollars to pay for their obligations.

Exporters have been selling dollars out of concern that the baht will surge even further if the central bank removes its 30-per-cent withholding requirement on capital inflows. While they have rushed to sell dollars, importers - acting on the same concerns - have slowed down their dollar purchases.

The BOT has suggested that exporters should not expect the revocation of the withholding requirement to cause further appreciation of the baht. Requirements that capital inflows be fully hedged are as efficient a measure to prevent speculation as the unremunerated reserve requirement, Atchana said.

"We have just told them to take a cautious look at the foreign exchange market. And we insist that existing measures can diminish speculation on the baht," she said.

Despite lower interest rates and the strong baht, private investment remains sluggish, Atchana said, adding that private investment also depends on confidence in the economy. Investors can postpone reinvestment plans despite being at full production capacity. They may do this out of "Fear of China" - the concern that China will dump products such as cement and metals on to the world market after next year's Olympic games.

Meanwhile, Commerce Minister Krirk-krai Jirapaet admitted yesterday that he was worried about the strengthening baht's impact on the export sector.

However, he said he would have to wait for more data before revising the ministry's export target, which was originally expected to grow by 12.5 per cent in 2007. Krirk-krai said any further assessment would have to take into account export figures for January this year, which should be released this week.

Last year, Thailand's exports earned about Bt5 trillion.

Krirk-krai said a short-term economic repercussion from the strong baht was inevitable. The ministry is now working closely with businesses to improve their competitiveness, particularly small- and medium-sized enterprises, steering them away from over-reliance on currency exchange rates.

The minister was recently in Khon Khaen to promote a regional government initiative providing training for businesses in the Northeast in areas such as logistics management, export planning, dealing with insurance and intellectual property protection.

Yesterday, Thai Union Frozen Products, one of the world's largest canned tuna makers, said it may miss its net profit growth target this year if the baht continues to rise against the US dollar.

"If the situation continues throughout the quarter, there is likely to be a revision of our targets," Thai Union Frozen's financial controller, Paco Lee, was quoted as saying by Dow Jones Newswires.

"However, I don't want to make any judgement from what I have seen [in the foreign exchange market] in the past two weeks yet," he said.

Anoma Srisukkasem

The Nation