Soon after the Bank of Thailand ( BoT) imposed strict policies on short-term capital inflows on Tuesday, the Stock Exchange of Thailand (SET) suffered a black day with its index plummeting 108.41 points, the biggest single-day- drop since the market was set up 31 years ago.

At the same time, the stock market lost 800 billion baht (about 22.3 billion U.S. dollars) in paper wealth as its key SET index plunged by a record 14.84 percent -- the worst since Black Monday in 1987.

Meanwhile, the Thai baht depreciated two percentage points to about 36 baht per dollar. Until Monday, the baht has risen by 14 percent since the beginning of 2006.

However, Deputy Prime Minister and Finance Minister Pridiyathorn Devakula insisted that the government wanted to take care of the Thai economy over the interests of foreign speculators. He said the BoT had acted in the interests of the private sector, especially exporters who were suffering from the strong baht.

The diving of the stock was mainly caused by measures imposed by the BoT. Since the government has noticed the continuing foreign capital inflows from abroad, unabated at present, are unusual and that most flowed into Thailand purely for speculation, the BoT on Monday introduced a shock therapy to ward off the baht speculation by requiring foreign investors to put 30 percent of their total investment as reserve requirement into the non interest bearing account of the central bank. If the investors take their money out within one year, they will only get 20 percent amount while the remaining 10 percent will go to the central bank.

Under the move, foreign investors can only invest 70 percent of their money brought into the country and if they keep their money in Thailand for less than one year, they will be subject to 10 percent withholding tax.

The plummeting of the stock on Tuesday shows the dropping confidence of foreign investors. Therefore, some analysts criticized the BoT's policies as "too stern", resulting in the stock market's free fall.

Korn Chatikavanij, a key member of the Democrat Party, on Tuesday urged the Bank of Thailand to immediately reverse the measure intervening the currency, saying that it would cause damages to the capital market for years.

"The measure causes the damage to the capital market. The Bank of Thailand should immediately reverse this policy, because no investors who will want to spend 100 baht just to have 30 baht withheld and they will get only 90 baht if they want to remit the money in less than one year," said Korn.

The reactions from the stock also surprised the BoT. However, the central bank never has any plan to reverse or remove the measure till now, although it consented to do some adjustment.

Nitaya Pibulratanagit, the central bank's assistant governor, said on Tuesday that the BoT is seeking for ways to reduce the effects of the 30 percent withholding requirement on other markets. But he said the central bank does not plan to remove the measure entirely.

Nitaya admitted after her meeting with brokerage companies and fund managers that the stock prices had fallen deeper than expected.

"After listening to (brokers), we must introduce measures to soften the rules quickly, but I can't say when we will do that," she said.

Source: Xinhua