Bangkok Post

Virabongsa: Burst could come soon

Dr Virabongsa said capital inflows have forced the stock market index up from around 1,000 points in the middle of last year to nearly 1,600 at present, while the purchase of government bonds has also surged by more than 15%.

He said he doubted that the central bank's Monetary Policy Committee would lower interest rates to cool the influx of foreign capital.

As a result, all parties concerned must find ways to prevent an economic bubble given Thailand's risk as a liberalised market, he said.

His concern is in line with the Asian Development Bank (ADB), which is warning about the rising risk of asset price bubbles in emerging East Asia due to increased capital flows through bond markets.

The region is more resilient than it used to be, Thiam Hee Ng, senior economist at the ADB's Office of Regional Economic Integration said.

But governments still need to be careful that the surge in capital inflows does not fuel excessive asset price gains, and that they are prepared for a possible reversal in the flows when the US and European economies recover.

Emerging East Asia is defined as China, Hong Kong, Indonesia, South Korea, Malaysia, the Philippines, Singapore, Vietnam and Thailand.

Investors have been putting their money to work in emerging East Asia since the early 1990s, but the flows have picked up pace recently because of low interest rates and slow or negative economic growth in developed economies.

Emerging East Asia, meanwhile, has enjoyed high growth rates and appreciating currencies, Mr Thiam said.

Deputy Prime Minister and Finance Minister Kittiratt Na-Ranong said yesterday he did not see any signs of a domestic property bubble.

He accepted there had been massive capital inflows into Thailand, but said very little of this had entered the property sector.

Mr Kittiratt said most of the "hot money" from foreign investors was flowing into the capital and bond markets rather than real sectors like the property market.

It was possible that investors who had made profits in Thailand might partially re-invest in local property, but this was still fairly rare and would not lead to any economic trouble, Mr Kittiratt said. "However, the government is taking proper precautions," he added.

Dr Virabongsa also said Thailand's agricultural sector needs to make structural adjustments, and the government must refrain from subsidising agricultural produce.