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Published on July 19, 2007

The Finance Ministry will soon unveil a package of measures to rope in the runaway baht, as proposed by

the Bank of Thailand, which yesterday surprised the market by cutting its policy in-

terest rate sooner than ex-pected in the face of relent-

less pressure on the Thai currency.

"I can't say how to solve this problem right now, but necessary steps will become more obvious on Tuesday," Deputy Prime Minister and Industry Minister Kosit Panpiemras said yesterday ahead of his meeting today with Finance Minister Chalongphob Sus-sangkarn and Bank of Thailand Governor Tarisa Watanagase.

The action plan is expect-

ed to include some of the

ideas raised by the Joint Public/Private Committee earlier this week.

While the dollar-holding period for ex-porters could

be lengthened, local companies and individuals could also be encouraged to invest overseas.

In moves to increase baht liquidity, the Finance Ministry introduced a policy to refinance foreign currency-denominated loans worth US$3.18 billion (Bt106.5 billion) with baht loans and approved the issuance of Bt26.9 billion baht bonds by six foreign financial institutions.

The baht ended weaker at Bt33.42/50 against Tuesday's closing of Bt33.33/35. The Stock Exchange of Thai-

land Index also dropped

0.86 per cent to 849.56, on turnover of Bt24.6 billion.

Ammar Siamwalla, an

economic policy authority

and honorary adviser to

the Thailand Development Research Institute, cast doubts on the effectiveness of the package. "They are hedge funds which possess huge

sums of money. How can we fight them?"

Wisit Tantisunthorn, secretary-general of the Government Pension Fund, also cautioned investors who are about to explore overseas opportunities to beware of the high risks, particularly when the measures fail to weaken the baht.

"So far, many investors have posted losses from such investment, as the baht keeps strengthening and that can't be offset by the returns on foreign assets," he said. Still, the fund's overseas portfolio has netted huge gains and the details would be revealed today, he said.

Deputy Finance Minister Sommai Phasee said the government and state enterprises plan to refinance or repay external debts by the end of the year.

"The refinancing will save Bt20 billion-Bt30 billion in borrowing costs [due to the foreign-exchange gains]," he said.

Over the next four months, at least 80 per cent of the debts would be refinanced while the rest would be covered before year-end.

"This is a measure to stem the baht rise. Personally, I think the dollar should weaken further, so more measures could be needed," he said.

The government could refinance its yen loans worth $690 million, he said.

The Transport Ministry has been asked to rush state enterprises under its supervision into following the conversion policy, and the ministry was expected to discuss this today, he said.

The State Railway of Thailand is one of the Transport Ministry's state enterprises that could swap debts into baht in a fast manner. The SRT has borrowed Japanese yen, equivalent to $1.27 billion, from the Japan Bank for International Cooperation. The refinancing would reduce the debt burden by Bt11 billion, he said.

Another state enterprise that is ready is Airports of Thailand Plc, whose yen loans are equivalent to $546 million. TOT Plc's yen loans could be converted to baht as well as Thai Airways International Plc's $264 million loan to purchase two aircraft.

"When the payment comes due in October, it could pay for the aircraft in baht," Sommai said.

The Metropolitan Provincial Electricity could also substitute baht loans for its euro loans worth $75 million.

From early this year, the Public Debt Management office has converted $2.03 billion of foreign loans, he said.

The ministry also approved the issuance of Bt26.9 billion baht-denominated bonds.

The issuers are the Central American Bank for Economic Integration for Bt4.9 billion, International Bank for Reconstruction and Development, or World Bank, for Bt5 billion, International Finance Corp for Bt5 billion, Japan Bank for International Cooperation for Bt3 billion, KfW Bankengruppe for Bt4 billion and Nordic Investment Bank for Bt5 billion.

The baht bonds could help develop the local bond market, which expects foreign issuers' bond value to account for at least 5 per cent of the total market, and could weaken the baht, as these organisations would have to sell the baht to buy dollars.