Bank of Thailand Governor Tarisa Watanagase yesterday defended Monday's shock capital controls to throttle debt inflows as a crisis response, saying they would be kept only until the currency calms down.

She declined to say how long that might take.

Thailand has the right to protect itself from hot offshore money hungry to profit on the upward trend of its currency, she said, adding that the intensifying speculation on the baht could end up destabilising the country as a whole.

"It looks exactly like a one-way bet on the Thai baht, which has appreciated by 15 per cent this year alone. Nobody can give an explanation of why the baht has become the favourite target of speculation. It's beyond any fundamental reason," she said.

The central bank is still reeling from a loss of credibility after it introduced wholesale capital controls on Monday to staunch the torrent of inflows. The next day it was forced to backtrack on the controls for equities and other investments after the stock market collapsed, leaving only those on debt inflows in place.

In spite of the wave of panic selling by foreign funds on Black Tuesday, only about Bt12 billion or less than a half of their net sales of Bt25 billion had actually been withdrawn from the Kingdom as of yesterday. Settlements of stock transactions take up to two working days.

Since the overseas institutional investors are still parking their money here, they have started to understand the situation and are now reconsidering their investment strategy. It shows that they are in for the long haul and don't worry much about short-term rules, she said.

As of Wednesday, Bt26 billion was held in non-resident baht accounts (NRBA) after the central bank lifted the ceiling of Bt300 million on those accounts at the end of the day.

Tarisa assured the market that the central bank would not introduce any more measures, as those in place were adequate to discourage exploitative positions on the baht.

The unidirectional movement of the baht has ceased, she said. The unit now shows two-way tendencies, with opportunities to weaken and strengthen.

"Earlier, we had given too mild a treatment and it wasn't effective. So we have to use stronger medicine in order to break the momentum of the appreciating baht and allow it to U-turn. If we didn't do that the baht would head north relentlessly," she said.

Tarisa refuted a report that the measure was launched to conceal losses on the central bank's forward obligations. She said the central bank had intervened in the foreign-exchange market in a small way compared with its international reserves, which amounted to US$64.7 billion (Bt2.4 billion) as of December 15.

"The baht appreciation is a cost to the country. The point is that the private or public sector will shoulder it. Earlier, the two parties had borne the cost, so we entered into the picture to partly help businesses, otherwise they along with employment would be affected. But the central bank intervenes only when the currency is too volatile," she said.

Suchart Sakkankosone, director of the Exchange Control and Credits Department, said foreign investment funds and property funds must be subject to the reserve requirement for new inflows.

Deputy Premier and Finance Minister Pridiyathorn Devakula ruled out an interest-ate cut to restrain the baht's appreciation against the US dollar.

Responding to calls by economists to use monetary policy to forestall further advances of the baht, Pridiyathorn said economists did not understand the real market situation.

"A 25-basis-point or 50-basis-point cut would not work while the baht soars at a greater pace in a few days. I know this because I used to trade money when I was young," he told reporters.

Ammar Siamwalla, a respected economist associated with the Thailand Development Research Institute, on Thursday blamed the capital control measures for hurting investor confidence.

He said the central bank should have cut the interest rate to stem the rising baht.

Pridiyathorn said foreign investors have enjoyed a 15-per-cent return on the baht from its increase in value by more than 10 per cent since January plus interest of about 5 per cent.

If the central bank did not take action, the currency could peak out close to Bt30 and devastate the export sector, which has been the main engine of economic growth.

Pridiyathorn lent his support to the central bank, saying it had made the right decision and Tarisa should be rewarded for her courage to save the export sector.

He said if all Asian countries adopted a floating exchange-rate regime, capital controls would no longer be necessary.

However, when a big country virtually pegs its currency to the greenback, greater pressure is on Thailand.

Democrat Party leader Abhisit Vejjajiva said policy makers should assume responsibility by admitting that they made a mistake in prescribing too tough a policy. "If they deny responsibility, the market will view that you do not understand the problem."

However, Abhisit did not call for anybody to resign.

Wichit Chaitrong,

Anoma Srisukkasem

The Nation