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Published on April 4, 2008

Pongpen Ruengvirayudh, senior director of the central bank's Financial Markets and Reserve Management Department, said foreign investors had evidently put their money into debt securities because of attractive returns and that foreign direct investment had also continued.

However, she said the present interest-rate spread between Thailand and the US was not the sole factor attracting foreign inflows, but rather they were also dependent on other factors.

"Returns in the South Korean bond market are higher, but those in the Singaporean bond market are lower than in Thai debt securities. It depends on which country investors want to put their money," she said.

Foreign investment in debt securities recorded net outflows of US$6.3 billion (Bt199 billion) over all last year and $854.6 million in January. The market blames the capital controls of the Bank of Thailand (BOT) for hampering Thailand's bond-market development.

But foreign direct investment recorded net inflows of US$7.5 billion last year and US$306 million in January. Other Asian countries have experienced similar capital inflows.

A United Overseas Bank Group research paper said foreign direct-investment plans in South Korea jumped 70 per cent year on year to $2.72 billion in the first quarter, the fastest growth in two years. The country has targeted 14-per-cent growth in foreign direct investment this year. Its government wants to boost investment through deregulation.

Thailand's recent foreign inflows have not put any pressure on the baht, because of high demand from importers for US dollars.

Pongpen said importers, especially those buying oil, had bought dollars in both spot and forward transactions, because they believed the US currency was presently at an acceptable level.

"Demand and supply in the foreign-exchange market are balanced, although the rate will sometimes move up and down in a day," she said, adding that the BOT was currently allowing market mechanisms to function.

The baht, along with other Asian currencies, reversed early gains against the dollar as US Federal Reserve chairman Ben Bernanke admitted it was possible the world's largest economy could shrink in the first half of the year.

Anoma Srisukkasem

The Nation