ASEAN KEY DESTINATIONS
Thai capital controls urged
The economist predicted the baht would strengthen to 29 to the US dollar by year-end. As a result, the government should impose new capital controls during the final two months of 2010 to ease the currency strains.
"New capital controls should be started, using soft measures first and increasing in degree, in accordance with the current situation here and in other regional countries," said the economist. Taiwan's central bank recently announced capital control measures for that country's bond market, followed by the South Korean government hinting it may revive a 14% tax on domestic Treasury and central bank bonds held by foreigners as early as next January.
The impact of the weakening dollar has been heavy, particularly after the US Federal Reserve announced a US$600-billion second quantitative easing to increase market liquidity.
"Thailand's existing measures will not be enough to control foreign capital inflows and the stronger baht. Additional measures will be necessary," said the economist, who asked not to be named.
"I think all central banks in the region including Thailand's have prepared measures for capital controls, because all regional countries have been heavily affected by the dollar depreciation and foreign capital fund inflows. The Bank of Thailand may wait to see the market situation here and in other countries before announcing any measures.
"In my opinion, the government should implement a capital gains tax for investment in the SET, as well as a 100% tax on foreign exchange gains. Such measures would help to ease the stronger baht efficiently."But Robert Zoellick, president of the World Bank, disagreed, saying fears of a surge in capital flows to emerging markets have been overblown, with some concerns overstated. Asian currencies fell yesterday, led by the Singaporean dollar and the baht on market concerns that policymakers will follow China and Taiwan in imposing capital controls.
Taiwan yesterday announced it would restrict foreign investment in government bonds and money-market products, while China said it will force banks to hold more foreign exchange.
Separately, Ariya Tiranaprakij, executive vice-president of the Thai Bond Market Association, said bonds have been affected by the Thai government's revival of a 15 percent capital gains tax on foreigners' bond investments.
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