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Thai move slams markets
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August 5, 1997: 12:19 p.m. ET
Country's economic struggles cause ripple effect throughout region
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NEW YORK (CNNfn) - Thailand continued punching at its monetary problems Tuesday, but it was its stock market and those of its neighbors which took the hit. And that has some investors thinking they should tread lightly around the market there.
The Thai government announced Tuesday a list of stringent economic measures, including a clampdown on securities firms in the country, that it hopes will cure the monetary woes it has suffered since the flotation of its currency, the baht.
The news sent the benchmark SET index down 15.35, or 2.3 percent, to close at 648.47 Tuesday. Those losses were echoed in neighboring regions like Singapore, where the Straits Times Industrials index fell 11.89 points to 1951.71, and Malaysia, where the blue chip Kuala Lumpur Stock Exchange Composite index was down 33.48 points, or 3.42 percent, to 945.08.
The ripple effect was just the latest in Thailand's destabilizing influence in the region. When the country floated the baht, it plunged in value. That set off fluctuations in the value of neighboring currencies as well. For example, Malaysia's ringgit fell 3.6 percent against the U.S. dollar last month.
On Tuesday, the Thai Cabinet approved a rescue package it put together in conjunction with the International Monetary Fund aimed at improving the country's economy and stabilizing its currency.
The package will hike the country's value-added tax from 7 percent to 10 percent. Excise taxes and the costs of public services will also be raised to market levels. In return, Thailand hopes to get $12-$15 billion in loans from the IMF.
More striking, however, was the Thailand central bank's decision to suspend the activities of 42 finance and securities companies, giving them 60 days to clean up their acts. Sixteen other companies had already had their activities suspended. Altogether there are 91 finance and securities outfits in the country.
Previously, Thailand had taken a more hands-off approach to such companies. But officials said they needed to stem the tide of approximately $500-$660 million in funds being diverted abroad. The government wants that money to stay in the Thai economy. The Central Bank also said it would guarantee the debt repayments and deposits of the suspended companies, although economists doubted the country's ability to do so.
Robert Hormats, vice chairman of Goldman Sachs International, said that although the measures could be good news for Thailand's economy in the long run, U.S. investors should stay away for now.
"In general, Americans should wait a little while to see if these reforms really work," he said. "I think they will but the average investor is going to have to be a little cautious given what we've seen over the last several months."
That opinion seems to be borne out by the performance of the top two Thai mutual funds available to U.S. investors. Daiwa Securities' Thai Capital Fund has lost more than 29 percent in the past year, while Morgan Stanley's Thai Fund has fallen even further, losing 43.7 percent.
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Royal Thai Government
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