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Opportunists reel from 'swap' shutdown


THERE may be defaults, losses of jobs for some foreign exchange dealers and a complete mess of settlement papers after the failed speculative attack last week against the Thai baht, dealers in Bangkok said.

Since the Bank of Thailand ordered a shutdown of the swap market on Thursday, foreign speculators who shorted the baht on Wednesday either could not get their hands on the Thai currency or would have to pay a punishing overnight rate of more than 1,000 per cent.

One dealer said the damage to foreign speculators was so huge that some of them might lose their jobs altogether.

''Some speculators refused to pay the punishing rate of 1,000 per cent, so there could be defaults on settlements," he said. ''The traders' job is over but the back office people will be sifting through the mess."

The BOT staged a big but costly victory over foreign speculators who launched a concerted attack on the Thai baht on May 8. The battle, which spread into the regional currency and stock markets, came to an end after the BOT ordered a shutdown of the baht trading in the swap market.

''This method is the most effective way to fight the speculators," the dealer said.

On Friday, there were virtually no baht quotes on the swap market in the dealing rooms. Dealers at Thai banks and foreign bank branches could only trade in dollars, not baht.

Others questioned the BOT hardball tactics in shutting down the swap market, saying that it tarnished Thailand's credibility in the international community. ''I wonder how the market will function on Monday after it's been closed for two days. What are the implications of the shutdown?" asked an experienced economist.

Yet a former BOT official argued that Thailand had every right to defend the value of its currency in the face of the speculative attack. He said the International Monetary Fund should have understood Thailand's position in protecting its currency.

''It's the behaviour of the speculators that should be condemned," he said.

The foreign speculators, mostly American and European banks, fiercely attacked the baht by spending US$10 billion (Bt260 billion) from their combined war chest. They expected to win the battle by forcing the BOT to deplete its reserves until it had to give in by devaluing the baht

They failed in the campaign because they underestimated the power of the BOT as a regulator, who could change the rules. In February, the speculators attacked the baht but retreated quickly when the BOT countered with a trump card, a strong statement that it would not devalue the baht.

This time the speculators tried to prey on Thailand's weakening macro-economy and confusion in the top economic policy-making team. Their bid failed but the BOT took some heavy blows in this bloody episode.



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