Amid growing upward pressure on the baht, the Bank of Thailand has announced bold measures that will allow local firms to take money out of the country without limit and also make it easier for exporters and importers to manage currency risks.
The move, which also further relaxes the ceiling for Thai investors to invest in overseas equities, comes after the baht climbed to its strongest level since June 2008. The measures are principally aimed at developing the financial markets, balancing capital flows and reducing the upward pressure on the baht as an enormous amount of money is flowing into the country.
The capital inflows through net export earnings, portfolio investment, service earnings or foreign direct investment has driven up the value of the baht and threatened the competitiveness of Thai exports. The baht is now quoted at around Bt32.90 against the US dollar.
"These measures are a part of the Bank of Thailand's financial liberalisation policy adopted since 2007," said Dr Bandid Nijthaworn, the deputy governor.
The measures are as follows:
n
No limits on overseas investments for Thai companies.n
Portfolio investment of Thai securities and mutual-fund companies and investors under the Securities and Exchange Commission's supervision is expanded from US$30 billion to $50 billion.n
Importers and exporters can have full flexibility in managing their currency risks through hedging instruments and derivatives.n
Easing of rules on the establishment of overseas corporate treasury centres and money transfers between affiliates .n
Increase in the amount for Thai individuals to invest in foreign properties from $5 million to $10 million.n
Thai companies are also allowed to lend to foreign companies up to $50 million without having to ask for permission. Earlier, they needed to ask for permission on a case by case basis."We want the private sector to be able to manage their risk effectively," Bloomberg quoted BOT Governor Tarisa Watanagase as saying.
Tarisa said the new rules would impact the baht only "over time".
These measures will take effect by the end of February, pending a regulatory announcement from the Finance Ministry.
However, the measure expanding the limit for investment in foreign equities and bonds from $30 billion to $50 billion will take effect today.
Thirachai Bhuvanat-naranubala, the secretary-general of the Securities and Exchange Commission, welcomed the BOT's foreign exchange liberalisation move.
"It marks a gradual step by the central bank to further promote capital market development and create linkages between the Thai market and the regional markets," he said.
"The rules will allow greater flexibility for securities companies or mutual fund companies to make their own portfolio investment in the overseas markets. Besides, investors will also have more options to invest in the overseas markets," he added.
The latest foreign exchange liberalisation marks an about-turn from December 2006 when the central bank imposed capital controls to ward off massive capital inflows that drove up the baht and threatened to create price bubbles.
The central bank then came under attack for introducing the unpopular capital-control measures. Shortly after that the BOT gradually began to ease the rules. The latest liberalisation move came in August last year.
Funds flows
(Figures pertain to 2009)
Foreign direct investment: US$350.75 billion (Bt11.6 trillion)
Exports: $150.88 billion
Foreign exchange reserves: $138.4
Trade surplus: $19.42 billion
Current account surplus: $20.29 billion
Balance of payments: $24.13 billion
Net capital inflow: $175 million
Imports: $131.46 billion
Bank of Thailand measures to relax outflow rules:
- Thai companies can invest in the overseas without limit
- Portfolio investments to be expanded from $30 billion to $50 billion
- Importers and exporters can have full flexibility in managing their currency risks through hedging
- The amount for Thai individuals to invest in foreign properties is raised from $5 million to $10 million.
- Thai companies are also allowed to lend to foreign companies up to $50 million without having to ask for permission
Source: Bank of Thailand and Board of Investment
