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Published on February 6, 2008

Exporters can now hold their foreign-exchange income for up to 360 days, compared to 120 days previously, in a bid to reduce pressure on the appreciating baht.

The new rule took effect on Monday.

The relaxation approved by the Finance Ministry is part of a series of measures to cool down the appreciation of the baht triggered by capital inflows and a current account surplus, which means the Kingdom receives more foreign-exchange income from trade and services than it spends.

According to the new measure, while exporters are required to bring their income back to the country, they do not need to immediately convert their foreign currency earnings into baht. This measure is expected to reduce pressure on the baht.

Chodechai Suwanaporn, director of financial strategy and development group of the Finance Ministry's Fiscal Policy Office, said the measure widened the room for exporters to hold their export income longer. They may hold the foreign-exchange income shortly before selling them.

"It depends on them whether they will hold the income longer. They could hold them if it is worth doing so," said Chodechai.

Bank of Thailand (BOT) Governor Tarisa Watanagase said earlier that the central bank would continue to encourage capital outflow to create a balance between capital inflow and outflow, which would reduce the pressure on the baht.

The central bank has been negotiating with the Securities and Exchange Commission (SEC) to lift the ceiling and allow more types of foreign securities for institutional investors to invest abroad, she said.

The measures aim not only to widen opportunities for investors to take advantage of new investment channels but also to diminish the pressure on the baht.

However, the foreign investments of institutional investors could hardly trim down the pressure on the baht because they also hedge their exposures to prevent currency risk.

The Finance Ministry has only recently allowed individual and institutional investors to hold foreign currency without limitation in terms of amount. It aims to lower demand for the baht and alleviate pressure on the currency.

Present restrictions stipulate that Thai individuals and corporations can have foreign-denominated currency, with liabilities, of no more than US$1 million (Bt32.94 million) and $100 million, respectively.

Individual and institutional investors can hold foreign denominated currencies, without any liabilities, of no more than $100,000 and $5 million, respectively.

The BOT has gradually relaxed some parts of the capital control measure after it introduced an unremunerated reserve requirement of 30 per cent on December 18, 2006.

It has encouraged individuals and the business sector to open foreign-exchange accounts and facilitate more foreign currency transfers.

Thai residents are now allowed to buy, exchange or borrow foreign currencies and deposit them at local commercial banks.

Anoma Srisukkasem

The Nation