Thirachai Phuvanatnaranubala, secretary-general of the Securities and Exchange Commission, talks on the Bank of Thailand's latest measures to liberalise capital outflow.
I think this is quite positive. Savers will have more options to make their investment, which will be spread out through different vehicles or instruments. Moreover, investment in commodity products will also be expanded. Now, we also try to encourage the market to come up with new products, such as a gold exchange-traded fund or a gold fund. Before long, we might also have a silver fund or an oil fund. This will help local business operators manage their risks more efficiently. Brokers can also take foreign products and list them in the local market.
Certainly, further liberalisation of the capital outflow will have benefits. But it will also come with more risks. What are some of these risks?
Yes, there are opportunities and risks. Once the market is more open, there will be growing competition from both within and without. Whoever would like to get their hands on savings will have to compete for those savings. Taking money out of the country will have risks. The method will become more complicated. I would like to compare the exchange controls with a glass wall. Once you remove the exchange controls or reduce the glass wall, there will be more competition. Without the restriction of a glass wall, we will go out in greater numbers to invest overseas, whereas foreigners will also be able to come in to compete. So, local operators will have to be fully prepared.
As a regulator, how do you suppose to look after Thai investment overseas? Is there any risk to the system?
Investors will have to learn how to manage risks. They must spread out the risks in their portfolios. However, this kind of investment will not hurt the system. Since investors are the ones who take the money out, they have to assume responsibility for their investment. It might sound like swimming in the sea with the sharks. But it is a learning process for investors. There might be some losses or some gains. If losses occur, they will hit individuals or companies - not the system.
How do you assess the pace of the Bank of Thailand's financial liberalisation? Is it gradual or too much too soon?
So far the Bank of Thailand has balanced its act pretty well. The cap on overseas investment the central bank has imposed on the Securities and Exchange Commission's regulation is not too much - from $30 billion [previously] to $50 billion. However, so far the outstanding investment under this cap is only $23 billion. This month we will propose to the board of the SEC measures to relax foreign-exchange regulations on mutual-fund companies, which need to have a better understanding about all aspects of liberalisation.
Will we see hedge funds pretty soon?
Yes, we'll have some kind of hedge funds. But the key question is: who would assume the risks or responsibility in the event of losses? We are studying this issue. In principle, there should be funds with higher risks and higher returns. But these funds must not create risk to the whole system. We know that hedge funds operate with high leverage of 10 or 20 times their capital. Who would be lending money to the hedge funds? What would be their collateral for borrowing? We need to have a sound structure first.
