BOT says it can cope with capital outflows
Foreign reserves high enough, but fund master plan may be reviewed
The Bank of Thailand is confident it can deal with capital outflows thanks to the nation’s high international reserves, while planning a review of Phase 2 of its master plan on capital movement.
Pongpen Ruengvirayudh, deputy governor of the central bank, said the current capital outflows were not unmanageable thanks to the country’s large international reserves, which are used to provide some liquidity to foreign investors when they need to move their capital out of the country.
Some foreign capital fled Thailand after the US Federal Reserve signalled it would taper off its bond-purchase programme. Previously, foreign investors sold off about 15 per cent of the outstanding value of Thai bonds.
However, foreign direct investment is not an issue now as it is expected to rise, Pongpen said.
The BOT expects the Fed to reduce its monthly bond purchases, and when it finally gets around to making that decision, foreign capital will likely continue moving out of Thailand, she said.
Noting that a country’s fundamentals are the main factor foreign investors consider, she said Thailand’s economic fundamentals were still sound despite a current-account deficit in the first half of the year.
The deficit was due mainly to gold imports. If those were excluded, the current account would have remained in a surplus.
Amid the current capital outflows, the BOT will likely review the second phase of its master plan on capital movement, which was one of the central bank’s three strategies for cutting its losses. The result of the review will be announced early enough to give those concerned time to prepare.
Earlier, under the plan for liberalising capital movement, the BOT permitted investment in foreign securities through foreign investment funds, personal funds or brokerage houses.
“We will have to look through the situations for Phase 2. Examples are permission for Thai individuals to invest directly in other countries,” Pongpen said, adding that there was no issue about a limit on foreign-capital outflows.
Aside from the master plan, the BOT also plans to increase its return on foreign-asset management through a new opportunity fund (NOF) and equity investment, which are currently under study. An NOF uses excess foreign assets as capital for investment.
Both an NOF and equity investment would require an amendment to the Bank of Thailand Act.
“It does not mean that we have to do the NOF and equity investment. We have to do our homework on whether we should do them or not. After that, the study’s results will be reported to the BOT board for consideration, and we expect to receive the answer soon,” Pongpen said.
The central bank has already proceeded with some of the loss-reduction plan by reducing the size of the international reserve and letting the Thai currency move according to the market mechanism.
At the end of last year, the BOT had total assets of Bt3.99 trillion with total liabilities of Bt4.52 trillion. Its equity was about Bt530 billion in the red. Its net accumulated loss totalled Bt442 billion.
