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Pickings may be slim for speculator Soros

 

THE Bank of Thailand is confident that it can keep George Soros the money man who made a cool US$1 billion (Bt26 billion) from betting on a Sterling devaluation in 1992 at bay over any attempt to obtain baht to cover his huge short positions, even after the currency has been floated.

Despite yesterday's dramatic move, the central bank said it will retain the two-tier baht system for the foreseeable future until it is certain that speculators have really been taught a lesson.

''Since we shut down the onshore baht market to foreign speculators, Soros won't be able to obtain baht easily, although the baht fell to a tempting level of Bt28 on the onshore market after the flotation," a top official said.

Soros and other hedge fund managers are believed to have brought along $6 billion to lay siege to the baht in mid-May. Some $2 billion of this was used to speculate in the spot market and the remaining $4 billion was used in the three-month forward market, betting on a baht devaluation.

The Thai central bank retaliated by closing down the onshore baht market, effectively cutting off Soros and his pals' access to the baht. After shorting against the Thai baht at the Bt26 level, the speculators would need to source the baht in the onshore market, where most of the baht supply is, in order to cover their positions.

''Since Soros can't get his hands on the baht he may have to default his positions," the senior central banker said.

Soros' and the hedge-fund managers' short baht positions in the three-month forward market are due in August. Although the baht rate fell to Bt28.75 on the offshore market, a level where Soros would have made massive profits, the offshore baht supply is not enough for him to cover his positions in order to reap the profits.

Market sources indicated that about two weeks ago Soros sent a message through dealers in Hong Kong, saying he would like to meet with BOT officials and reach a settlement. However, the meeting never took place, they said.

Yesterday, banking regulators were satisfied with the initial market reactions toward the baht flotation. The interbank rate soared to 30 per cent, not 70-80 per cent as expected. There was no evidence of the baht overshooting, with dealers quoting the Thai currency in the Bt29 range, a one-day depreciation of around 15 per cent.

After announcing the baht would be floated, the BOT immediately raised its discount rate the rate at which it lends short-term money to commercial banks from 10 per cent to 12.50 per cent in order to control the initial depreciation of the currency.

''If the situation continues like this, we'll know that most of the volatility in the Thai financial markets is offshore generated rather than domestically generated," a banking official said.

 

BY VATCHARA CHAROONSANTIKUL and THANONG KHANTHONG

 

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