Thailand relaxes outflow rules, encourages hedging

Updated Tuesday, February 2, 2010 11:26 am TWN, By Suttinee Yuvejwattana, Bloomberg
www.chinapost.com.tw
Thailand's central bank scrapped limits on overseas investments by local firms and made it easier for exporters and importers to manage currency risks, after the baht climbed to its strongest since June 2008.

Companies no longer need approval to carry through foreign-exchange hedging transactions for amounts exceeding US$20,000, Deputy Governor Bandid Nijathaworn said in Bangkok. A US$200 million a year cap on investment and lending to overseas affiliates will be scrapped, he said.
“We want the private sector to be able to manage their risk effectively,” Bank of Thailand Governor Tarisa Watanagase, 60, said in an interview earlier Monday. Tarisa said the new rules would only impact on the baht “over time.”
China and South Korea have also sought to ease pressure on their currencies by encouraging companies to expand overseas and investors to purchase assets abroad. The baht rose 4.2 percent in 2009, the fourth-best performance among Asia's 10 most-traded currencies, as overseas investors pumped a net US$1.1 billion into local stocks.
Attempts to encourage capital outflows have had limited success in capping currency gains. While China's non-financial outbound investment rose 6.5 percent to US$43.3 billion last year as the government eased restrictions, currency reserves still climbed 23 percent to US$2.4 trillion. South Korean companies cut investment abroad by 42 percent to US$5 billion in the third quarter from a year earlier.
“The new rules are a good balance as they will have some success by encouraging outflows but on the other hand will not limit foreign inflows in any market disrupting way,” said Dariusz Kowalczyk, chief investment strategist in Hong Kong at SJS Markets Ltd. He said the policy was “modestly negative” for the baht in the medium term but positive on the short term because stronger rules were avoided.
Thai policy makers last imposed limits on funds entering the nation in December 2006 to slow baht gains and protect exporters, a measure that led to a divergence between the onshore traded value of the currency and the offshore value. Equity investors were exempted from the restrictions on Dec. 19, 2006, after the benchmark stock index slumped 15 percent. The curbs were fully lifted in March 2008.
Gains in the baht threaten to derail a recovery in Thailand's exports, which started to pick up in the final quarter of 2009 after a 12-month slump. The baht climbed 5 percent in the past year, lagging behind the 22 percent advance in the Indonesian rupiah and the 18 percent rally in the South Korean won. Monday it weakened 0.1 percent to 33.22 per dollar, compared with a 20-month-high of 32.79 on Jan. 19.
“The easing of the rules will help balance capital flows, which will then curb foreign-exchange volatility,” the Bank of Thailand's Bandid said.
The Bank of Thailand also increased to US$50 billion from US$30 billion the amount allocated to the Securities and Exchange Commission for companies under its supervision to invest in securities overseas.