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Thailand Money and Capital Markets
The money and capital markets were still underdeveloped in
the mid-1980s. One striking fact was that the money market was
very rudimentary and there was practically no open market for
short-term securities; the only investors in treasury bills and
government bonds were commercial banks and a few other financial
institutions, which had to hold them until maturity. Certificates
of deposits did not exist, and, for all intents and purposes,
promissory notes issued by the finance companies were
nonnegotiable. In order to increase the liquidity aspect of
government bonds, in April 1979 the Bank of Thailand established
the government bond repurchase market. In reality this was only a
brokerage window at the central bank for institutional investors
and, therefore, did not help to achieve the desired objective of
open-market operation. Thus, Thai interest rates were determined,
to a significant degree, by international forces rather than
central bank sales and purchases of government securities.
The Security Exchange of Thailand (SET) had combined the
functions of securities market and securities commission,
providing the legal framework for underwriting and trading of
corporation shares of common stocks and bonds as well as
government securities. In 1974 the SET assumed the functions of
the Bangkok Stock Exchange, which never had been very active. In
1976 the SET had an upsurge because of expansionary monetary
policy. In 1978 the SET collapsed, however, because of massive
speculation, easy margin finance of up to 70 percent of a
transaction, unpreparedness and inexperience of the brokers as
well as the investors, and inadequate regulation and supervision
of the market and such activities as inside trading and
manipulation. The government created at that time two special
public funds to purchase securities in order to limit the
negative effects of price swings in the SET. Many investors,
however, held on to their investments that had declined in value
in order to wait for a better price, thus decreasing normal stock
market activity. The hesitation to trade in the market created a
surplus problem for the SET, further damaging investor
confidence. Some economists suggested that more specific
regulations and supervisory systems were needed in order to
revive the SET and restore public confidence.
Data as of September 1987
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