Photo: REUTERS/Kerek Wongsa
Thailand has put a 15% tax in place to discourage foreign investment in the country, according to Reuters.The way the tax works is by hitting foreign investors who are investing in the country’s sovereign debt or the debt of government owned companies. The 15% tax applies to interest payments and capital gains on this debt.
Brazil has already engaged in such capital control moves, putting taxes on foreign investments. It hasn’t helped much.
Thailand is acting to slow the movement of capital into its economy, as foreign investors seek higher yields in the country’s debt, then they are receiving in developed markets. It is another means of fighting the currency war.
While the Thai baht may continue to increase in value versus the dollar because of the impact of more quantitative easing, these taxes will slow the flow of money into Thailand, and theoretically reduce pressure on the currency.
To put in context the size of the inflows Thailand is seeing: In 2009, $730 million was invested in Thai bonds by foreigners; in the first 9 months of 2010, $4 billion was invested in Thai bonds by foreigners.
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