Thailand Developments

Thailand has become the latest emerging market country to take action to slow capital inflows. As hinted yesterday, Thailand’s cabinet approved today to impose the 15% tax on interest income paid to foreign investors that domestic investors subject to. Previously, foreign investors were exempt for income earned from government or quasi-government bonds.

Reports indicate that foreign investors have bought a little more than $1 bln in Thai bonds this month after buying nearly $5 bln in Q3. Foreign investors have also stepped up their purchases of Thai equities. Data from the stock exchange indicates that of the $1.61 bln worth of Thai shares foreigners bought in the Jan-Sept period, almost $1.2 bln was bought last month alone. As is the case with many countries experimenting with measures to slow down capital inflows, Thailand is also looking at ways to encourage capital outflows.

The government will take measures to accelerate its foreign spending in Q4. The Thai baht is among the strongest emerging Asian currencies, gaining about 11.3% against the dollar and bucked the regional trend today to post a minor gain against the recovering dollar.