Asian capital controls may scare investors

Asian capital controls may scare investors

SINGAPORE (AFP): Capital controls to check speculative attacks on Southeast Asian currencies are seen as short-term necessities by governments but analysts fear they could dent foreign perception of the region as an investment haven.

Thailand and Malaysia have imposed capital controls to stop speculators. The Philippines reportedly has told six foreign banks not to trade in the peso.

"One of the greatest fears in the market is abrupt policy about-turns because it makes the business of investing that much harder," said a chief executive of a foreign finance house, speaking on condition of anonymity.

He added: "While capital controls do not affect so-called genuine investors, it's the perception that they create that could affect foreign investors' impression about the investment climate."

Andy Tan, general manager of US research house Standard and Poor's MMS in Singapore, said what was vital was whether fiscal and monetary regulatory policy changes were consistent and transparent.

"The financial markets will not be spooked if there is a general indication from the various authorities regarding the direction of regulatory policy changes," Tan said.

The central Bank of Thailand ordered Thai commercial banks in May to stop selling the baht to foreigners unless they could prove the currency would not be used for speculation.

The Thai controls, imposed before the July 2 effective devaluation of the baht that triggered the regional currency turbulence, created a two-tier currency market in which foreigners pay a steeper rate to buy baht than local investors.

Malaysia ordered domestic banks over the weekend not to lend more than two million U.S. dollars in ringgit through the swaps market to any offshore counterparty in a bid to cut off the supply of ringgit for offshore investors to sell short.

Short sellers -- those who sell borrowed currency to buy it back later at lower prices -- have been widely blamed for the recent erosion in the value of the baht, ringgit, the Indonesian rupiah, the Philippine peso and the Singapore dollar.

Foreign banks in the Philippines were in discussions with the central bank regarding restrictions on the trading of the peso, which was also effectively devalued on July 11.

Singapore has a cap on lendings in Singapore dollars by offshore banks to their corporate clients.

"They are probably more of short-term rather than long-term measures but I am not too sure whether their impact could hurt investor confidence rather than help investor confidence," Wong Yit Fan, chief economist for Southeast Asia and Indochina with Standard Chartered Bank.

Wong said market perception about government measures to check attacks on currencies had not been that good.

"The dangerous thing about the entire process of the currency turmoil has been perception, not so much the fundamentals or management of the crisis. Unfortunately, governments everywhere have a very poor record in managing expectations in terms of investor confidence," he said.

In Malaysia's case, analysts were surprised by the introduction of the capital control because it could dent confidence among foreign investors, much needed to boost efforts to turn Kuala Lumpur into a financial center.