BANGKOK (AP) — Foreign investors bailed out of the Thai stock market in droves yesterday, forcing Thailand’s military government to abandon just-announced measures aimed at stemming the country’s surging currency.
The Thai government said it would lift controls — announced a day earlier — on foreign investment in stocks after the market plunged nearly 15 percent, rattling regional bourses amid worries about a repeat of the 1997 Asian financial crisis.
Jittery investors dumped stocks in Hong Kong, India, Indonesia, Malaysia, South Korea and the Philippines.
By late yesterday, Thai authorities capitulated on controls on stock investments. Finance Minister Pridiyathorn Devakula said the measures would remain on foreign investments in bonds and commercial paper, however, as part of the central bank’s measures weaken the Thai baht, which hit a nine-year high versus the dollar Monday.
Mr. Pridiyathorn, a respected economist who helped steer Thailand’s economy out of the Asian financial crisis 10 years ago, chalked it up to a learning experience.
“This is a lesson that measures which were successful in other countries must be considered more thoroughly,” said Mr. Pridiyathorn, who has a master’s degree in business from the Wharton School at the University of Pennsylvania. Before the Sept. 19 military coup, he was the central bank governor.
“Since we changed it a day after it was implemented, it has yet to cause damage and it is not too late,” he said. “The stock market will go back to normal as the overall economy is still in good shape.”
Analysts said the government’s reversal was expected to bring some relief to the markets today.
Yesterday, the Thai stock market had its worst day ever.
The Stock Exchange of Thailand’s benchmark SET Index plunged as much 19.5 percent before recovering to close at 622.14, down 14.8 percent, and the lowest since October 2004.
Around Asia, markets took a beating. Indonesia’s Jakarta Composite Index fell by 2.9 percent, while the Kuala Lumpur Composite Index lost 2 percent.
Hong Kong’s Hang Seng Index fell 1.2 percent and the Bombay Stock Exchange’s 30-stock Sensitive Index, or Sensex, dropped 2.5 percent.
The tumultuous day evoked memories of the financial crisis that started in Thailand in July 1997 with the baht’s plunge, which spread to other regional currencies and markets, dragging the whole region into a recession.
This time, however, Thailand has the opposite problem: The baht is too strong as a result of foreign speculators pumping billions of dollars into the country.
To curb those inflows, the Bank of Thailand announced late Monday that banks would be required to hold in reserve for one year 30 percent of capital inflows that aren’t trade- or services-related or those that aren’t a repatriation of Thai residents’ investments abroad.
If investors want to withdraw the money in less than a year, only two-thirds of the amount withheld would be returned, resulting in an effective tax of 10 percent on the total initial investment.
The Bank of Thailand said the drastic measures were necessary because the pace of net investment inflows had increased to $950 million in the first week of December from $300 million per week in November and a total of $13 billion in the first 10 months of the year, as money flowed in for a one-way bet on the direction of the baht against a fading dollar.
The moves seemed to have some effect on the currency: Yesterday, the baht weakened to 35.93 per dollar from 35.09 Monday, a nine-year high.
Analysts downplayed worries about another regional crisis, arguing that the region’s economic health is much better than it was in 1997.
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