Controls knock off share value in Thai

People with more than $20000 investments were threatened of severe penalties in case they withdrew the money within a year by the Bank of Thailand caused turmoil in the stock market of the country. The rise in the Thai baht that hit the country’s exports made the government to take this decision, for which they got a hit back.

The country feared the return of decade back Asian financial crisis, when people started selling their shares knocking off 15% of share values and partial decrease of the stock market, protesting the strict orders of not to take out their money out of the country.

The government succumbing to the pressure from financial markets offered to lift the controls on foreign investments in shares with the exception of bonds and government papers.

This decrease in Thai stock market impacted the markets of Kuala Lumpa, Jakarta, Singapore, Hong Kong, New Delhi and Manila along with the ones in Brazil, Turkey and South Africa. This decrease also made the global investors to reassess the opinion on emerging markets.

The drastic measures were considered necessary due to the increase in investment pace from $300 million in November to $950 million in the first week of December with the money flowing in one direction into the country.

Announcing the climbdown yesterday, finance minister Pridiyathorn Devakula said: "This is a lesson that measures which were successful in other countries must be considered more thoroughly."

Mr Pridiyathorn, who as central bank governor helped steer Thailand through the 1997 crisis, added: "Since we changed it a day after it was implemented, it has yet to cause damage and it is not too late. The stock market will go back to normal as the overall economy is still in good shape."

According to analysts, a decade ago in 1997, the investors panicked due to the decrease in baht’s value, while on Monday, they panicked due to the increase in the value of baht, and decrease in exports.

Background

Early 90s saw fast growing economy in Thailand that had higher currency and interest rates. However, with the inflow of money, there was a speculation of shares and property, increase in imports and decrease in exports. When the speculative money started flowing out, the value of baht dipped down.