Thailand eases capital curbs in effort to revive flagging economy

Thailand unveiled wide-ranging measures to ease capital controls on Thursday as it intensified efforts to jolt life into a once-dynamic export-led economy that is sinking from Southeast Asian leader to laggard.

The central bank's move is part of a campaign to ease pressure on a flagship manufacturing sector that is under threat from regional competition, political instability and the strength of the baht.

The measures included raising limits on cross-border transactions by multinationals, Thai companies and non-resident currency speculators. The bank also announced big increases in annual allowances for Thai residents to buy overseas property and foreign currencies for deposit.

Thailand cut interest rates and growth forecasts earlier this week, in a sign of the increasing urgency of reviving the region's second-largest economy amid what some fear may be longer-term decline.

"Tourism is the only bright spot, but this requires sustained political stability," said Anthony Nafte, a senior Asia economist at CLSA brokerage in Hong Kong. "Poor economic performance will undermine the credibility of the unelected military-led government."

But the task facing policy makers was underscored by the initial modest impact of Thursday's move and Wednesday's surprise second consecutive 0.25 percentage point cut in the central bank's main interest rate.

The two-pronged attack drove the baht about 1 per cent down to almost 33 to the US dollar by Thursday afternoon in Asia. But effective exchange rates relative to a basket of Thailand's big trading partners were still close to their highest levels since the country's 1997 currency crisis.

That peak is bad news for exporters in Thailand's manufacturing sector, which want a weaker baht to make their products more competitive in overseas markets. The finance ministry this week cut its export growth forecast for this year from 1.4 per cent to 0.2 per cent, feeding into a cut in predicted gross domestic product growth from 3.9 per cent to 3.7 per cent.

Kevin Kwek, a senior analyst at Bernstein Research in Singapore, said the interest rate cut was a "desperate measure" to try to improve a "deteriorating picture".

ANZ bank said it expected another interest rate reduction to help push the baht to 34 to the dollar by the end of the year, but it warned the central bank's action was "no panacea" to improve growth.

The Asian Development Bank predicted in March that the Thai economy would expand 3.6 per cent this year, compared with 5.5 per cent for Indonesia, 6.1 per cent for Vietnam and 6.4 per cent for the Philippines.

While no one is predicting an economic crisis in Thailand close to the magnitude of the 1997 meltdown, many observers think the government is too optimistic about the impact of planned stimuli such as big railway projects.

Consumer debt has ticked up, while modernisation of the country's infrastructure and much-criticised education system have been held back by almost a decade of periodically violent on-off political conflict, including prolonged street protests and two military coups.

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