TAIWAN CURBS INFLOWS OF FOREIGN EXCHANGE
Taiwan's central bank announced that as
from today the overseas foreign exchange borrowings of local
and foreign banks would be frozen at the level they reached at
the end of May.
    The central bank's statement added that the measure would
be effective until the end of July.
    Bankers said the measure is designed to curb the inflow of
foreign exchange and slow the growth of money supply. They
added that the move, which sparked a record single day plunge
of the local stock market, would limit their ability to lend
foreign exchange to importers and exporters.
    Foreign exchange borrowings by local and foreign banks
reached almost 12 billion U.S. Dlrs by the end of April,
according to official statistics.
    Last week the central bank said that from today it would
reduce its purchase of forward U.S. Dollars from banks to 40
pct from 90 pct of the value of the contract. It said the move
was needed because of "distortions" in the foreign exchange
market.
    Exporters, nervous about the appreciating Taiwan dollar,
have been heavily selling forward U.S. Dollars on the interbank
market to avoid exchange rate losses.
    Official figures show that forward U.S. Dollar sales in May
reached a record of almost six billion U.S. Dlrs against 5.9
billion in April.
    All Taiwan's foreign exchange earnings must be converted
into local dollars, boosting money supply at a time of booming
exports. Money supply rose a seasonally adjusted 51.86 pct in
the year to end-April, raising fears of higher inflation.
    In March the central bank clamped tight restrictions on
remittances of foreign exchange by companies and individuals to
Taiwan in a move to curb inflows of speculative money.
    Economists and bankers estimate that the rising value of
the local dollar has attracted about ten billion U.S. Dlrs of
speculative money into Taiwan since early last year. It has
flowed in mainly from Hong Kong, Japan and the U.S..
    Since September 1985 the Taiwan dollar has risen by about
22 pct against the U.S. Dollar.
    Bankers said the government's efforts to stabilise the
foreign exchange market were a prelude to lifting all curbs on
capital outflows. The central bank has said the controls will
be dropped by the end of July or early August.
    Foreign exchange dealers said today's announcement caused
jitters in the market with foreign and local banks making heavy
purchases of U.S. Dollars. They said the central bank sold
about 30 mln U.S. Dlrs.
    Taiwan's stock market plunged a record 75.53 points to
close at 1,803.08.
 REUTER
