Bank of Thailand fights baht speculators

Bank of Thailand fights baht speculators

BANGKOK (AFP): Thailand's central bank has renewed a request
for commercial banks here to avoid offshore baht loans in a bid
to ward off further speculative attacks on the currency, an
official said yesterday.

The Bank of Thailand asked commercial banks in a letter last
week to avoid swap transactions, direct lending, overdrafts and
any other non-resident lending that could be used by speculators
on the Thai currency, the official said.

The "letter of understanding," received by local and foreign
commercial banks here, clarifies earlier requests for cooperation
made by telephone during a speculative assault on the baht in
mid-May.

The Thai unit then sank to its lowest level in 10-and-a-half
years, before rallying as the Bank of Thailand and Southeast
Asian central banks intervened in foreign exchange markets to
drive baht levels back up.

The central bank official, who refused to be named, said that
informal contacts with commercial banks were good, but the letter
would serve "to make sure that everybody was doing the same
thing."

"These are only a temporary measures. Once the bank feels
there is no threat of speculation, it would rescind these
requests," said the official, adding that no exact timeframe was
specified.

The limitations on lending do not prevent commercial bank
lending for stock investment, bonds or property, provided
transactions are supported by the necessary documentation, the
official said.

A sharp drop in exports and a persistent current account
deficit has led to pressure for a devaluation of the baht over
the past year -- a move strongly resisted by the government.

Although a devaluation could be a boon to Thailand's largely
export-driven economy, such a move is seen as prohibitive as it
would increase the country's overseas debt-burden, much of it
foreign borrowing to the Thai private sector.

After the speculative run on the baht last month, the central
bank boosted short-term interest rates for overseas investors in
a move to hit speculators with huge interest bills.

A foreign bank dealer in Bangkok commented that baht
speculation had become a dangerous undertaking because of the
high penalties of holding an overdraft in a non-resident account.

"If you don't have enough baht in an account here and you try
to speculate by buying dollars and selling baht, you can get
burned very badly when you're overdrawn," he said.

Overnight interest rates in offshore markets had reached as
high as the equivalent of an annual rate of 1,500 percent during
the recent attack on the baht.

"If the government can't solve the fundamental economic
problems, another attack could be in the offing. It seems the
authorities have no intention to devalue or make any change in
the currency system," added the dealer.