"This will leave a bad taste in people's mouths for a long, long time"
Instead the move to rein in the baht's value prompted a surge in selling by foreign investors looking to dump Thai shares.
As share prices tumbled the head of the Thai exchange called on the central bank to reverse the currency controls, brought in to stem what it said was a surge of speculative short-term currency inflows.
But despite the market closing down by almost 15 per cent, the bank’s head had refused saying it was too soon for any changes.
Then late on Tuesday Pridiyathorn Devakula, the Thai finance minister, announced that while the controls would remain in place for investment in the bond market, they would not apply to foreign investment in Thai stocks.
Under the new controls, investors bringing new capital into Thailand would have had to have to keep their money in the country for at least a year or face stiff financial penalties.
The back-flip was quickly criticised by dealers worried about confidence in the Thai economy.
"It's a joke, isn't it? A total farce," one Bangkok-based foreign banker told Reuters. "Things will obviously go up tomorrow, but not to where they were because the risks have clearly changed. This will leave a bad taste in people's mouths for a long, long time."
|The new controls were brought in to stem a|
surge in the value of the baht [AFP]
Another Thai broker was equally furious.
"Are they playing games? This looks really bad. How can they change their minds? Why didn't they tell us sooner? And why now? The damage has been done," a senior dealer, who did not wish to be named, told Reuters.
At one point in Tuesday’s trade Thailand's stock market dropped by almost 20 per cent, the biggest one-day slide since the 1997 Asian financial crisis wiping about US$20 billion off the value of the market.
That prompted exchange officials to briefly halt trading, the first time trading has been suspended on the exchange.
Tuesday's dive in Thai stocks sent ripples across the Asian region.
Markets in Indonesia, Malaysia, South Korea, the Philippines, Hong Kong and India all dipped as nervous investors cashed in on profits fearing a repeat of the 1997 slump.
It also sparked jitters in already cautious European markets most of which ended Tuesday down slightly.
The Thai central bank said it had introduced the currency controls because speculative short-term money inflows had jumped to around $950m in the first week of December from about $300m a week in November.
Thailand’s stock market is the third largest in South-East Asia.