Finance

Thailand made financial news on March 3 by lifting capital controls on the Thai Baht that were imposed 14 months ago.  The Bank of Thailand (BOT), the central bank, had imposed the measures to limit the rapid appreciation of the Baht against the US Dollar, which was reportedly hurting exports, and to prevent speculative investment in the capital markets.  Thailand’s capital controls imposed in December 2006 did not stem the appreciation of the currency (the Baht appreciated by about 14% since that time) and in spite of this appreciation, exports rose by over 30% in 2007.  This leaves open two key questions: (1) if the controls did not ultimately prevent the currency from appreciating, what impact did they have on financial market development?

Sovereign Wealth Funds (SWFs), government owned investment vehicles typically funded by foreign exchange surpluses or natural resource revenues seem to be in the news about everyday.  Their massive size, rapid growth, and high-profile investments in the U.S. and elsewhere in 2007, has generated this attention.  Some of the SWF investments have been viewed as market stabilizing, for instance the substantial equity investments in large U.S. financial institutions that recently got into financial trouble after the sub-prime mortgage crisis.  However, there is great suspicion from many quarters of the SWFs as being politically motivated and the SWFs currently at the center of the storm are in Asia.