January 30, 2007	Tuesday	Muharram 10, 1428

BANGKOK, Jan 29: The Bank of Thailand (BoT) took another step on Monday to ease its controversial capital controls that sent stocks plummeting last month, by exempting more foreign investments flowing into Thailand.

From February 1 onward, fully-hedged offshore borrowings in foreign currencies by firms operating in Thailand would be exempted from the 30 per cent withholding requirement, said the central bank's head of financial market operations, Suchart Sakkankosone.

The exemption also covers borrowings brought in for buying warrants, capital increased shares, transferable subscription rights, and depository receipts related to equities.

“The exemption is to allow a greater variety of investments, aiming to facilitate capital flows related to trade and services,” Suchart said.

Offshore borrowing will be exempted by immediately swapping the proceeds into baht. Loans with maturities of greater than one year must be fully hedged for at least one year, he added.

Exporters' packing credits of up to 180 days are exempted from the withholding provided that the borrower agrees to repay the credits with foreign currency proceeds from the impending trade.

The relaxation, however, failed to boost the stock market on Monday when share prices dropped by 0.57 per cent as analysts said such changes encouraged more investments in bonds.

The imposition of the controls sparked a 15 per cent drop in the stock market in December, prompting authorities to allow an exemption for investment in shares. Other types of investment had remained subject to the new rules.

The measures were designed to curb the baht's rapid rise, which hurts Thailand's critical export sector by making Thai goods more expensive overseas.

Since the controls were imposed, the baht had held steady at around 36 to $1, but over the past few days it has crept up to above 35 to the greenback.

On Monday, the Thai currency appreciated to 33.15 baht to the dollar in offshore trading on tight supply of dollars overseas.

Business leaders, however, gave a lukewarm welcome to the BOT's decision, saying such a relaxation would only give a slight boost to the stock market and investor confidence in general.

“It wouldn't help much. As long as the 30-per cent reserve requirement remains in effect, risks will remain in Thailand,” said Supavud Saicheua, a leading economist and head of research at Phatra Securities.

Siriporn Chaiyasuta, general counsel of Chevron's south Asia operation, said the relaxation might be “too late.”

“It might be better than doing nothing to correct what they did wrong. But I think it might be too late,” she told AFP. —AFP