BoT to boost deposit limits : Move to help firms access foreign loans

CAPITAL /CONTROLS LENDING AND DEBT MARKET

BoT to boost deposit limits : Move to help firms access foreign loans.

PARISTA YUTHAMANOP

The Bank of Thailand will extend outstanding limits on foreign currency deposit (FCD) accounts for local entities that raise funds abroad to resolve obstacles caused by its 30% reserve requirement on capital inflows. The central bank currently limits accounts at $5 million per day for each entity. They are permitted to increase by $2,000 per day.

The accounts represent an option for local companies who plan to borrow from offshore markets to match their foreign-currency liabilities, according to Suchart Sakkankosone, the director of the central bank's exchange control and credit department.

Under the Dec 18 measure, local companies need to set aside a 30% reserve in an interest-free account at commercial banks to convert foreign funds to local currency.

The state-run oil and gas conglomerate PTT Plc said earlier it might need to scrap plans to issue debentures abroad as a result of the capital controls.

''Local entities may not have to convert overseas loans to baht if it's not necessary. They can put the funds in FCD accounts with commercial banks and ask us to extend the maximum outstanding balance on a case-by-case basis. This is an option,'' Mr Suchart said.''We haven't suggested to them a way to circumvent foreign-exchange rules, nor keep funds with overseas banks, as appeared in certain news reports.''

He said the economy recorded $600 million (21.6 billion baht) in net outflows after the central bank imposed capital controls.

Foreigners dumping Thai stocks accounted for half of the amount.

Outstanding balances in non-resident baht accounts stood at 26 billion baht in the past week, compared with 23 to 24 billion baht before the measure was imposed.

''The net outflow was smaller than early in 2006, when some $1 billion in net outflows were recorded due to investor risk aversion from dollar depreciation,'' Mr Suchart said.

Central bank governor Tarisa Watanagase said capital flows to date had remained normal, although the proposed Foreign Business Act reforms could have an impact on the baht.

''If foreign investors lack confidence and see the Thai economy as weakening in the future, then yes, the baht could weaken,'' she said.

''But by how much, no one can say. The central bank does not have a target for the currency, and if foreign investors see the problem as a short-term one, the impact on the baht could be minimal.''

Foreign investors remain sceptical about economic prospects following the cabinet's approval on Tuesday of tighter controls on foreign shareholdings and voting rights under the FBA.

Most analysts have cut their projections for economic growth this year by up to 0.5 percentage points due to the impact on investor confidence from the FBA reforms, the New Year's Eve bombings and the capital controls.

The central bank's Monetary Policy Committee will meet next Wednesday to assess economic trends.

It will also set new economic targets for this year, Dr Tarisa said.

''From our assessment to date, domestic demand is on a downward trend,'' she said.

''But whether this merits new stimulus measures or not depends on a reassessment of various factors.''

Bangkok Post
Friday January 12, 2007