To discourage Thai baht speculation, on 18 December 2006 the Bank of Thailand ("BOT") published a notification implementing a reserve requirement on short-term capital inflows. Commercial banks, through which foreign currency remittances are made, are required to withhold 30 percent of foreign currency amounts of US$20,000 or more (or the equivalent in any other foreign currency) bought or exchanged against the Thai baht, although transactions relating to trades in goods and services or repatriation of overseas investments by Thai residents are excluded. Thirty percent of the remittance must be placed in a non-interest bearing account as a reserve requirement. Foreign investors, as a result, will only be able to exchange 70 percent of their money into baht.
The details of the measure are summarised as follows:
1. Foreign currencies bought or exchanged against the baht for foreign currency borrowings or investments in debt securities transacted from 19 December 2006 onwards are subject to the 30 percent foreign currency reserve requirement.
2. Foreign currencies bought or exchanged against the baht for the following transactions are exempt from the 30 percent foreign currency reserve requirement:
If the 30% reserve remains unwithdrawn for not less than one year, it is returned in full (with no interest). If the funds are repatriated within a year, the refund would only be two-thirds the total amount, as one-third of the reserve is forfeited.
The seller or exchanger can maintain only one SNS for the settlement of investments in equity. The balance in the SNS account must not exceed 300 million baht. The BOT will continue to review the appropriateness of this limit.
The BOT will keep the reserve requirement under review, and it is possible that the measure will be cancelled, or the reserve amount changed or the time limit altered, depending on circumstances.
Although the BOT is of the view that this measure will discourage speculation, as it will increase costs for speculators, there has been widespread criticism of the negative impact of this measure on inward investment. The measure introduces additional uncertainty, complexity and, potentially, cost to an already difficult investment environment.
|Name: Ananya Thongdumrongchai|
|Phone: +66 2 677 7555 ex168|
|Fax: +66 2 677 7599|
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