Thai Central Bank Earns Up To $250M From May Baht Crisis

AP-Dow Jones News Service

BANGKOK -- Thailand's central bank may have earned profits of up to $250 million as a result of its successful defense of the baht earlier this month, an economist at Natwest Markets said Wednesday.

In an interview with Dow Jones, Daniel Lian, head of Natwest Markets' Asian bonds and currency research, said the Bank of Thailand reaped the profits on the baht's gain as a result of its intervention in the currency market and following its decision to shut out offshore speculators.

The central bank's action, he said, is also expected to keep speculators from targeting the baht again over the next two to three months.

'I don't think the offshore speculators have the muscle to come back and launch another massive (attack) again,' he said. 'The damage was quite severe if you talked to the funds and other people. They haven't figured out the way to get around the two-tier system yet.'

Moving to stamp out speculative attacks against the baht, the Bank of Thailand this month split the currency market into two, forcing foreign investors who sold the baht short to pay a high premium when they seek to buy the Thai currency back. 'They have to pay the price,' Chaiyawat Wibulswasdi, deputy central-bank governor, said then.

Lian said the figures of profits were based on estimates of losses made by hedge funds and foreign banks that have bet against the baht during the currency crisis.

'The total losses for the whole offshore (market), including the hedge funds, were probably at least $500 million,' he said. 'And that's quite conservative (estimate).'

Lian said other Asian central banks acting in concert with the Bank of Thailand also capitalized on the currency crisis, which spread beyond Thailand into the Southeast Asian region. Such profits made by these central banks were estimated to be up to $150 million, he said.

'On their own domestic market, intervention for their own currencies, not directly to support the baht, they were also inflating damages on the speculators,' he said in the interview, citing the currency defense taken by Bank Indonesia and Bank Negara during the crisis.

The Bank of Thailand was joined by the central banks within the Association of the Southeast Asian Nations (ASEAN) and the Hong Kong Monetary Authority. Their coordinated intervention, the first of its kind, has surprised financial markets and successfully warded off currency speculators.

But the danger of that concerted action is that the next speculative attack against the baht will likely be larger in size, making it more difficult for the central bank to sustain, Lian said in his report published Wednesday.

'If there is another baht battle in the near future, we are quite certain that the Bank of Thailand will enlist the support from Asian central banks and utilize the two-tier baht defensive strategy again,' the report said. 'Hence offshore speculators are likely to devise new offensive strategies to counter the Bank of Thailand's defensive plots. The battle is likely to be fought on a larger scale and the prices for winners are likely to be considerably bigger.'

'On their own domestic market, intervention for their own currencies, not directly to support the baht, they were also inflating damages on the speculators,' he said in the interview, citing the currency defense taken by the Philippine Central Bank and Bank Negara during the crisis.

(In an item timed around 1148 GMT (7:48 a.m. EDT), the name of the central bank was misstated).