Stocks rebound, but Thai credibility in tatters

But by then Thailand's reputation in the eyes of international investors was in tatters.

IDEAglobal headlined a research note "Tourists' haven, investors' hell" as analysts poured scorn on Pridiyathorn and his protege and successor, Tarisa Watanagase, both appointed to their current jobs after the coup.

"They are proving themselves to be very unprofessional. Their actions are very irresponsible. They have totally lost credibility," said Catherine Tan, head of Asia Emerging Markets at Forecast in Singapore.

"I don't see foreigners returning to Thailand anytime in the near future. Markets now have no confidence in the government."

Tarisa, appointed to the central bank's top job just two months ago, agreed with her former boss that equity investments should have been exempted from the rules, and admitted the sell-off took policy-makers by surprise.

"We had to reverse the measures as the market reacted more than we expected," she told reporters.

ABN AMRO cut its investment rating on Thailand to "underweight" and questioned how the economy was being run in the aftermath of the coup -- Thailand's 18th in 74 years.

"Policy decision-making seems to be at odds with the workings of capital markets," the investment bank said.

INTERVENTION QUESTIONED

The sell-off sparked brief fears of a repeat of the 1997/98 Asian financial crisis -- triggered by a baht devaluation -- and prompted falls in stock markets in the region, although they too recovered on Wednesday.

Bond yields (0#THTSY=) were largely steady in Thailand's secondary market on Wednesday, with those on the long end falling slightly after central bank intervention, dealers said. Yields had jumped 20-40 basis points across the board on Tuesday.

"Why did they intervene in the bond market today? They should have known bond markets would fall after the baht measure," Forecast's Tan said.

The baht (THB=), the strongest Asian currency against the dollar this year, was trading around 35.6 against the dollar. It fell more than 2.5 percent from a 9- year high on Monday, when the central bank first announced the capital controls.

The curbs were designed to rein in the baht's rise by forcing speculators to keep their money in the country for at least a year or face a 10 percent penalty.

Trade-related deals and repatriation of funds by Thai residents were excluded. Pridiyathorn added equity-related transactions to the exclusions late on Tuesday.

Exporters had welcomed the curbs because a rising baht threatens to make their goods uncompetitive on world markets and could reduce earnings repatriated from overseas.

(For more stories on the policy turnaround double click here (nSP114462))

(Additional reporting Arada Therdthammakun, Orathai Sriring and Ploy Chitsomboon in Bangkok and Umesh Desai in Hong Kong)