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Last Updated: Thursday, 21 December 2006, 11:21 GMT
Thai markets remaining volatile
Board showing Thai stock market movements
Many investors are mulling the impact of Thailand's currency rules
Thailand's stock and currency markets have continued their volatile week after top politicians backed plans to limit the strength of the baht.

On Thursday, Bangkok's SET stock index fell 2.4%. It had plunged 15% on Tuesday but rebounded 11% on Wednesday.

The Thai baht fell 1.7% against the US dollar on Thursday, the biggest decline in three years.

The volatility followed central bank plans to limit the amount of money that could be withdrawn by investors.

The recent upheaval has reminded investors of the 1997 Asian financial crisis, when huge outflows of foreign funds - initially from Thailand - led to regional market collapse.

'Definitely hurts'

The central bank's plans were aimed at limiting the gains in the baht, which has been one of the best-performing Asian currencies this year and whose strength has been blamed for a drop exports.

Foreign investors were told that they would only be able to invest 70% of money brought into the country, and would only be able to recoup the full amount if they left it in the country for a year.

This prompted a sell-off in stocks that gave the SET index its worst day in 16 years, and shook markets across Asia.

The policy is clear that we don't want to see the baht rise too much, as it would effect the overall economy
Prime Minister Surayud Chulanont

The size of the reaction shocked Thai authorities and in an effort to halt the slump, Finance Minister Pridiyathorn Devakula said on Wednesday that foreigners would be able to trade equities free of the restrictions.

The restrictions still apply to overseas investments in bonds.

Investors called the move misguided, and said it highlighted a lack of market understanding in Thailand, which has been ruled by an interim government since a military coup in September.

"It definitely hurts Thailand's standing with the international investor community," said Marco Sucharitkul, president of JP Morgan Securities in Thailand.

"Foreign investors will remain wary of Thai monetary and economic policies for the next few months. It does not help that the government was appointed by military coup makers," he said.

'Flip-flopping'

Uncertainty about the future resurfaced on Thursday after Prime Minister Surayud Chulanont and his finance minister both said they supported the Bank of Thailand's moves to control the baht despite tweaking its plans.

"The policy isn't flip-flopping," the prime minister said. "There has been no change in policy. The policy is clear that we don't want to see the baht rise too much, as it would effect the overall economy."

Man walking past a board showing Thai currency prices
A weaker baht will boost exports and may help attract tourists

Finance Minister Devakula said that: "There was no point being stubborn about it. If we stuck to what we announced at first, it may have caused more damage.

"For the country, I am alright with losing a little bit of face," he said.

The Thai baht fell to 36.42 against the US dollar on Thursday, trimming its gains for the year to 12%.

Thai officials have said that they want to see the baht trading no stronger than 35 against the dollar.

The central bank said on Thursday that the currency controls would be lifted once the baht stabilises.


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