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Central bank limits baht conversion

Thailand's central bank will ask banks to withhold 30 percent of money to be converted into baht and to lock it in for a year to curb speculation after the currency reached a nine-year high.

Investors will get back the full amount if they keep the money in Thailand for more than one year, central bank Governor Tarisa Watanagase told a briefing in Bangkok yesterday.

Those who withdraw the reserved amount in less than a year will be penalized one-third of that amount, she said.

The baht has risen by as much as 16.6 percent this year, the third-best performer among the world's 71 most active currencies, as a Sept. 19 coup broke a political stalemate and the government predicted the economy will accelerate.

Thai Union Frozen Products Plc, the world's second-biggest tuna canner, and other exporters on Nov. 16 asked the central bank to stem gains in the baht that are undermining their competitiveness.

The baht yesterday touched 35.08 against the greenback, the highest since Sept. 29, 1997.

The currency reversed yesterday's gains to fall 0.1 percent after Finance Minister Pridiyathorn Devakula said the central bank would make a "historic" announcement.

A rising currency hurts exporters by cutting the value of their baht-denominated profits and making their products more expensive compared with their Asian rivals'.

The Chinese yuan added 3.1 percent against the dollar this year, the Malaysian ringgit gained 6.3 percent and the Singaporean dollar climbed 7.9 percent.

"The baht has gained really quickly and sharply," said Koji Fukaya, chief economist and currency analyst in Tokyo at Bank of Tokyo-Mitsubishi UFJ Ltd. "That could put a brake on the nation's exports and the central bank may be really concerned about the pace of appreciation. So they have to do something to slow the move."

The baht has appreciated even though the central bank earlier this month introduced measures to limit its gains. The monetary authority on Dec. 4 asked companies and commercial lenders not to sell baht short-term debt securities to overseas investors. It also put restrictions on banking services for non-residents holding debt maturing in less than three months.

The baht earlier rose as overseas investors bought the nation's assets to profit from gains in the baht. The economy may expand 5 percent this year, exceeding an earlier estimate of as much as 4.7 percent and last year's pace of 4.5 percent, the government said on Dec. 4.

A military coup on Sept. 19 ousted prime minister Thaksin Shinawatra and ended seven months of political turmoil. Prime Minister Surayud Chulanont, installed by the military junta after the coup, is planning record spending on roads, subways and other infrastructures.

"Economic conditions are quite good and that encourages capital inflows," said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co in Tokyo. "It's in a virtuous cycle now. People put money in and that boosts the value of the baht, which makes investments in Thailand more attractive."

It may rise to 35 by the end of the year, Soma said.

Foreign investors have bought US$587 million more Thai stocks than they sold this quarter, the second straight three-month period of net purchases, stock exchange data showed.
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