Oct 23, 2012

Thailand - BOT further spur overseas investment

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The Bank of Thailand has further promoted capital outflows aimed at supporting more investment abroad and better management of financial risks.

The new measures will also help the central bank manage the exchange rate after the high pressure of large capital inflows has been causing the baht to appreciate.

To promote overseas direct investment, the central bank will allow individuals to make unlimited investment to expand their production or marketing abroad, Pongpen Ruengvirayudh, deputy governor of the BOT in charge of monetary stability, said yesterday.

The new measure is expected to increase the competitiveness of the private sector. Corporations have been allowed since 2010 to invest overseas without a limit on the amount of money.

For investment in foreign portfolio, the central bank will allow institutional investors including listed companies to put unlimited amounts into foreign assets.

The BOT and the Securities and Exchange Commission will allow Thais to invest in foreign bonds issued in Thailand.

The two institutions will also relax rules on foreign-currency transactions to promote asset transactions via the Asean Linkage platform under the Asean Economic Community's capital-market development.

Residents will be allowed to have bank accounts for foreign-currency deposits without limits if they have business obligations.

This is aimed at helping importers and others manage foreign exchange better.

To help people cope with exchange-rate volatility, individuals will be allowed to unwind hedging positions freely.

The central bank will also allow moneychangers and money-transfer agents to do more business, and their qualification requirements will be relaxed.

Non-residents will be able to do more baht transactions without underlying businesses. Financial institutions will be allowed to lend up to Bt500 million to non-resident clients. They will also be allowed to make direct baht loans to non-residents who want to make investments in Thailand.

The central bank may further liberalise capital outflows after it makes an evaluation of the impact of the aforementioned measures to be implemented this and next year. The BOT will look into the pattern of capital flows and financial stability.

The central bank says Thailand has lagged behind other countries in the same league of economic development in terms of foreign direct investment.

Thai investment abroad is worth only 15 per cent of gross domestic product, compared with an average of 30 per cent, Pongpen said.

"Foreign investment in Thailand is much higher than Thai overseas investment. This has caused the central bank to increase international reserves, while new measures will lead to more foreign assets to be in the hands of private sectors," she said.

The central bank is not worried about the possibility of too much capital outflow in the future as it has a large international reserve worth US$208 billion (Bt6.39 trillion), she said.

Thailand faced abrupt capital outflows between 1996 and 1997, leading to a financial crisis that depleted international reserves and spread to other Asian countries.

Pongpen said new capital inflows would not amount to much compared with previous inflows since prices of Thai shares and other assets have risen considerable. Estimated moderate money injection via the third round of quantitative easing compared with previous QEs by the US Federal Reserve will also not encourage large inflows, she added.

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