Thailand's expensive miscue in the capital markets has raised questions about the military-installed government's ability to keep the country on an even keel, analysts said yesterday.
They cautioned that Tuesday's U-turn -- the government quickly withdrew new capital restrictions after they sheared 15 percent off share prices -- could also make investors wary of the country in future.
"It really damages the government's credibility. You cannot suddenly change important regulations overnight," said Sukhbir Khanijoh, a senior market analyst at Kasikorn Securities.
"It reflected that this government is not so keen about long-term government policy," Sukhbir said.
Investors panicked in the face of stringent rules aimed at halting the baht's rise, which caused the Thai stock market to plunge 108.41 points or 14.84 percent -- the biggest one-day drop in the 31-year history of the local bourse.
Within hours, Finance Minister Pridiyathorn Devakula was forced to dump the strict currency controls in an abrupt U-turn, saying they no longer applied to stock-market investments.
"Investors are now worried about what comes next from this government," said Wu Song-seng, a regional economist at investment bank CIMB-GK in Singapore. "They are probably better soldering than managing the economy."
The current government was put in place by the military, which carried out a coup in September that toppled prime minister Thaksin Shinawatra.
Thaksin, a self-made billionaire, was deeply unpopular in some parts of Thai society by the time of his ouster -- but his business experience was a reassuring presence for many in the international community.
He won widespread praise for revitalizing the Thai economy in the wake of the 1997 Asian financial crisis through market-friendly reforms, and was seen as a savvy hand when it came to the nation's finances.
"Thaksin was a business-minded prime minister and he would be well aware of negative implications of [Tuesday's] tight currency control measures," Song said about the aborted controls.
The policy mishap resulted in staggering market losses worth 816 billion baht (US$23 billion), and led to calls in the Thai press for heads to roll -- and speculation about whether the new finance minister could survive.
"It was the most expensive economic lesson for Thailand since the financial crisis in 1997 and someone must take responsibility for this lesson," said Krungthep Thurakit, a leading business daily.
The Nation daily said Pridiyathorn had "put his future on the line."
"He has the backing of the Council for National Security and the interim government," the daily said, referring to the ruling junta. "Still, his political muscle is being put to a big test."
The market rebounded yesterday after the U-turn, with the stock exchange rising 66.03 points or 10.61 percent at the close of the morning session.
But Tuesday's losses were an unsettling echo of the Asian financial crisis, which was sparked when the government was forced to float the baht in July 1997 in a bid to bolster the country's then-flagging exports.
The baht promptly crashed, took the Thai economy with it and sent a tidal wave of debt and default sweeping across the region that cost billions of dollars to put right.
The impact was so great that it has taken years for many regional stock markets to revisit pre-crisis levels.
Despite recent gains, Thailand's bourse still remains far below its all-time high of 1,753.73 in January 1994.
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