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Published on March 4, 2008

The Joint Private Committee yesterday called on the government to review its decision to scrap the 30-per-cent capital-control measure, saying that if it is not reversed, new measures must be put in place to control the baht's rise in both the short and long term.

The joint committee will today pass its economic proposals to Prime Minister Samak Sudaravej as well as asking for an urgent meeting with the government, with the focus on currency management.

Federation of Thai Industries (FTI) chairman Santi Vilasakdanont said exporters were growing worried about the cancellation of the capital-control measure, as no short-term measures to stem the baht's rise have been introduced in its place.

"Exporters' profits are falling on foreign-exchange losses. If the government can't stabilise the baht, this will probably hit the economy severely," he said after the meeting between the chiefs of the three powerful private organisations that comprise the joint panel: the FTI, the Thai Chamber of Commerce (TCC) and the Thai Bankers Association (TBA).

The joint committee has set up a team to monitor the baht.

"If the baht continues to fluctuate, we would like the government to launch measures to prevent speculation," Santi said.

Without extra measures, he said local suppliers might be forced to close their plants, as leading exporters could opt for imported raw materials, which are cheaper.

The baht strengthened 5 per cent after the 30-per-cent rule's revocation took effect yesterday.

Montree Socatiyanurak of the National Institute of Development Administration anticipated that the baht could strengthen to 30 per dollar, due to rising demand for the local currency on the back of a stronger economy. He suggested the authorities let the baht move freely, unless there are signs of speculation.

In a 12-point proposal, the joint committee suggested that the government speed up budget spending, solve violence in the deep South, launch aggressive strategies to penetrate new markets and revise  business laws. The government should also promote border trade, review the tax structure, boost firms' competitiveness, promote small and medium-sized enterprises, find new locations for industrial expansion, and relieve the debt burden for farmers and the poor.

TCC vice chairman Pongsak Assakul said the 30-per-cent capital control had efficiently held back the baht's rise in the past year. The government should cancel the measure only if it can stabilise the unit's value.

Pongsak called for the government to seek immediate measures to curb the baht's appreciation in the short term, in order to ensure that it rises in line with the currencies of neighbouring countries.

In the past two years, the baht has strengthened by 18 per cent against the US dollar, compared to an average 8-per-cent increase by other Asian currencies. The capital-control measure had brought the baht's appreciation in line with these regional currencies.

TBA secretary-general Thawatchai Yongkittikul said the government must reverse its cancellation of the measure if there are data showing that exporters are suffering from the baht's further appreciation.

 "Without the capital-control measure, export sectors will be hardest hit and may collapse soon," he said.

The cancellation has prompted currency speculation and encouraged many speculators to sell the US dollar rapidly. Moreover, there is speculation in the bond market and property funds, Thawatchai said.

To solve the speculation problem, he urged the government to announce urgent measures to absorb the baht's rise.

Thawatchai also foresees that the supporting measures of the government will take at least one year to slow down the appreciation of the currency.

Anusorn Muttaraid, director of Delta Electronics (Thailand), said his company did not believe that the baht's value would stabilise following the Bank of Thailand's revocation of the30-per-cent control yesterday. Therefore, Delta is still fully hedging against currency fluctuations throughout the year.

"I believe the currency will still fluctuate and I can't estimate the short-term situation," he said. "All of Delta's electronics components are exported to the international market, so the company has to hedge fully throughout the year in order to make sure that we will not be at risk."

Former finance minister and ex-Bank of Thailand governor MR Pridiyathorn Devakula said he was confident that the baht would not fall below the 31-per-dollar level following the reserve measure's removal.

Pridiyathorn, who backed the introduction of the measure on December 18, 2006, said the revocation had come at the right time and exporters should be comfortable with the Bt31 rate for the dollar.

He said that in the past year, the control had helped maintain economic growth. The economy expanded 4.8 per cent on the back of 18-per-cent export growth. But he acknowledged that the 20-per-cent plunge in stock prices when the measure was introduced showed that it had come as a major shock to the bourse.

"However, a thorough study will show that the measure had no long-term effect on the exchange," he added.

Meanwhile, Deputy Prime Minister and Finance Minister Surapong Suebwonglee yesterday dispelled rumours that he was planning to sack Bank of Thailand Governor Tarisa Watanagase.

He also dispelled a rumour that Securities and Exchange Commission secretary-general Thirachai Phuvanatnaranubala would replace Tarisa.

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