Securities and Exchange Commission secretary-general Thirachai Phuvanatnaranu-bala yesterday urged the Bank of Thailand to allow individuals to invest abroad to reduce the pressure on the baht to appreciate due to capital inflows.

Thirachai said such currency liberalisation was appropriate when the macroeconomic outlook was satisfactory.

He suggested transfers through private funds as they had greater investment knowledge compared to individuals operating alone. It would allow for better control of outflows, too, he told a Fiscal Policy Office forum.

"Each investor should be permitted an outbound maximum limit each year to ensure sufficient liquidity in the country.

"It is a new paradigm that every country is coming to. We have to use this time to restructure manufacturing, and during that time, we will encounter big problems if we don't allow the money out," Thirachai said.

He said Taiwan permitted individuals to invest up to US$5 million (Bt173 million) overseas each year because institutional outflows were insufficient to ease inflow pressure.

His recommendation came amid mounting concern over capital inflows to Asian countries, including Thailand. The baht has appreciated considerably as a result.

The commission made the suggestion to the central bank in January but it decided the time was not right for the measure.

Thirachai said there would be an impact on the stock exchange if investors had alternative overseas boards to choose from.

But, if the local exchange went private, it could cope with competition and be more efficient.

BOT deputy governor Atchana Waiquamdee said it would not relax outgoing transfers for individuals in the short term, but would "gradually liberalise by allowing US-dollar accounts".

Short-term fixes could leave the country short of foreign exchange to deal with a current-account deficit, she said

She was optimistic that measures encouraging mutual funds to invest abroad introduced earlier would be adequate to ease the baht's strength.

Lower interest rates would also slow inflow volume, she said.

Atchana said the bank faced massive capital flow and foreign exchange challenges sparked by a huge US current-account deficit, carry-trade in the Japanese yen, an ageing population and Asian central-bank reserves.

It is difficult to balance development money and capital markets to prevent volatility, asset-price bubbles and economic instability, she warned.

"Baht management is public policy because currency intervention increases costs and transfers wealth from importers and foreign-currency debtors to exporters," Atchana explained. The bank cannot over-actively intervene in baht movement because it will affect its balance sheet.

Atchana insisted the bank could not allow the government to finance mega-projects with foreign reserves, as suggested by the National Economic and Social Development Board.

That is fiscally undisciplined and will have a similar economic effect to "printing money".

"If we did that it would become the norm from government to government. Do it once and it will be done again," she warned.

Atchana said the government could finance projects by issuing bonds and selling them to the central bank.

Wichit Chaitrong,

Anoma Srisukkasem

The Nation