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      Thailand Live Saturday 12 October 2024

Thirachai Wants Bank Of Thailand To Reconsider Inflation Policy


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BANK OF THAILAND

Thirachai wants BOT to reconsider inflation policy

By Wichit Chaitrong

The Nation

Finance Minister Thirachai Phuvanatnaranubala plans to hold discussions with Bank of Thailand Governor Prasarn Trairatvorakul on the the central bank's inflation-targeting policy in view of a pressing need to stimulate domestic demand to counter the global economic weakness.

Thirachai has sent out a signal that he disagrees with the central bank's ongoing move to rein in inflation through tightening of its monetary policy.

"The Fiscal Policy Office will be studying whether the inflation target of 0.5 to 3 per cent is appropriate amid slow economic growth in the advanced economies," he said.

The Bank of Thailand is now on course to normalising the interest rate structure. It is keeping its repurchase rate at 3.25 per cent, while inflation reached 4 per cent in June and 3.4 per cent in the first half of the year. The interest rate will have to be at least on par with the inflation rate.

However, on his first day in office, Thirachai said he would like to explore the impact of the central bank's effort to rein in inflation that could hurt the purchasing power of the people and the overall domestic demand.

He plans to hold discussions with the central bank after Prime Minister Yingluck Shinawatra delivers the policy address to Parliament on August 24. "The BOT's rate hike so far has served to rein in inflation, but it is hurting the purchasing power of people," he said.

Thirachai added that the Finance Ministry would also consult the BOT onr whether to further liberalise banking service by giving new licences to banks from Asean countries, or Asean+6 countries such as India, South Korea and China.

Securities firms, under further liberalisation, might also be allowed to trade currencies in order to increase competition in the financial markets.

Thirachai also touched on the sensitive political issue of whether the government would impose a tax on former prime minister Thaksin Shinawatra on the proceeds from the sale of Shin Corp shares to Temasek Holdings of Singapore in 2006.

Thirachai said he would follow the principle of tax justice and would be ready to collect tax from Thaksin if the law required him to pay tax.

"Regardless of who it is, whether his name is Thaksin or Thirachai, they all must be subject to the tax law," Thirachai said on the pending controversial tax issue related to Thaksin.

The Revenue Department has recently indicated that under the law it might not be able to collect tax on Thaksin's incomes from the sale of his Shin Corp shares to Temasek.

Thirachai assured that every taxpayer would be treated equally.

Thirachai will also discuss possible measures to reduce the central bank's operating losses, which would be a way to tackle the Financial Institutions Development Fund's long-standing debts. He said that higher interest rates would draw more capital inflows, which would require more dollar purchases, leading to higher losses at the central bank.

On the possibility of creating a Sovereign Wealth Fund, he said this issue would also be explored as many countries were now using their reserves to invest in tangible assets such as commodities.

In his policies announced yesterday, Thirachai said a joint public and private committee would be set up to monitor internal and external risks and come up with immediate remedies. The finance minister will chair the committee, which will also include members from the Federation of Thai Industries and the Thai Chamber of Commerce.

It was one of five policies that he announced yesterday on taking office. The others include tax policies promised by the Pheu Thai Party as well as coordination with the Bank of Thailand.

Thirachai vowed to uphold fiscal discipline while carrying out the election promises of ruling coalition parties, in particular tax restructuring that would be designed for greater efficiency and fairness. He will also seek discussions with other ministries to deal with large-sized investment projects, as prioritisation must be adapted to meet the changing development policy as well as investment environment.

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-- The Nation 2011-08-16

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What's he really signalling?

BOT, do as I tell you!

In other words, the independence of the BOT seems to be in question.

Oh well back to the thaksin era - things that should have separation from politicians are with no conscience controlled and manipulated as needed.

Why does this remind of the destruction of the checks and balances leading up to the 2006 coup?

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I think most of the posters here will prefer BOT to not to tighten the interest rates as this will drive up the THB meaning less THB per USD/EURO ... rolleyes.gif ... so I agree with Thirachai if that is what he means ... however it is for BOT to decide.....also agree that the banking sector could do with some liberalizing so we can get a bit competition for the local banks to the benefit of the customers....

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Apart from (not quite explicitly, as yet) challenging the independence of the BOT, none of these are bad ideas if implemented without fear or favor.

The US is actively devaluing the Dollar and the Chinese are restraining the strength of the RMB. Small developing economies like Thailand are unfairly caught out having to spend precious savings to buy rapidly depreciating dollars which then they have nowhere to park except low-yielding US Treasuries. On the whole, Thai consumers haven't benefited much from the Baht's rise as retail prices of imports from gasoline to Gap clothes aren't as low as they should be. Thai exporters have benefited from BOT interventions only to the extent that they have just barely managed to keep their heads above water. Most of the benefits have gone to a handful of middlemen.

Lack of any real competition among local banks have allowed them to make a killing on exorbitant interest rate spreads. This situation is crying out for some much-needed injection of competition, something that can be accomplished by gradually allowing, first regional, then international banks to participate in the retail banking sector.

A truly independent sovereign wealth fund, as Norway has shown, is a great way to maximize returns from Thailand's reserves.

In the current climate, recession fears hold greater stock than inflation fears and targeting inflation should be a lesser concern. Thailand is a developing country with developed country inflation rates. That is incongruous. Higher inflation should be tolerated in a developing economy where the priority should be higher growth rates that pull greater numbers out of poverty at a faster clip.

Even the proposed minimum wage hike would not necessarily be inflationary. It really depends on how workers and employers (whether government or private sector) behave. If it leads to greater overall productivity throughout the economy, it would have a positive effect.

So while the motivations for the ideas may be suspect, depending on the color of your shirt, the ideas themselves have merit, IMO.

T

Edited by Thakkar
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Apart from (not quite explicitly, as yet) challenging the independence of the BOT, none of these are bad ideas if implemented without fear or favor.

Did he not state post-election that an independent Bank of Thailand was a hindrance to implementing the policies of the political party?

The US is actively devaluing the Dollar and the Chinese are restraining the strength of the RMB. Small developing economies like Thailand are unfairly caught out having to spend precious savings to buy rapidly depreciating dollars which then they have nowhere to park except low-yielding US Treasuries. On the whole, Thai consumers haven't benefited much from the Baht's rise as retail prices of imports from gasoline to Gap clothes aren't as low as they should be. Thai exporters have benefited from BOT interventions only to the extent that they have just barely managed to keep their heads above water. Most of the benefits have gone to a handful of middlemen.

You surely mean the "top men"?

Lack of any real competition among local banks have allowed them to make a killing on exorbitant interest rate spreads. This situation is crying out for some much-needed injection of competition, something that can be accomplished by gradually allowing, first regional, then international banks to participate in the retail banking sector.

Oh no! Please not another debt driven boom and bust. And please keep those Anglo-American banking shysters out of Thailand.

In the current climate, recession fears hold greater stock than inflation fears and targeting inflation should be a lesser concern. Thailand is a developing country with developed country inflation rates. That is incongruous. Higher inflation should be tolerated in a developing economy where the priority should be higher growth rates that pull greater numbers out of poverty at a faster clip.

The Thai GDP is growing at some 8% or so. Where on earth do you get recession fears from?

Inflation is an absolute killer for the low and middle classes. The Thai inflation rate is around 4%. The new government's 50% increase in minimum wage rates, which will only effectively apply to large companies and the public service, will result in them feeling better off until the inflation rate kicks in and then everybody is worse off.

You are fundamentally addressing the re-balancing of the global economy, and this should be achieved through the currency and not through internal inflation. The west has been living way above its means and productive contribution to the global economy through debt, artificially low exchange rates of Asian currencies and the USD hegemony. This is changing.

The west is heading towards a financial disaster. Vastly too much debt and commitments to benefits, future pensions and health care, all of which are unaffordable and unpayable.

The east needs to look to itself and reward itself for the hard work and strategic economic position it has reached. Growth will no longer come from the west, they are in debt up to the roof tops. Exchange rates must rise and allow the Asians to reap the benefits of their hard work. To continue supporting the decadent lifestyles of the west is utterly stupid.

The west is now full of effectively receding nations, over indebted, over-spent and little possibility of further development.

The future is here, in Asia, accept it and grasp the possibilities it presents.

Edited by 12DrinkMore
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The 2010 growth rate of 8% has to be seen against the sharply low rates of 2008 (-0.7% to 1.9%) and 2009 (-4.9% to 2.2%). The second quarter 2011 growth rate was only 2%— low by developing country standards and needs.

I'm not endorsing inflation per se. I'm saying that growth should be a more urgent priority. As long as growth stays ahead of inflation, things can be kept under control and an overall positive effect achieved.

Right wing ideologues would have us believe that wages are always inflationary. Sometimes, yes. But more often, not. What matters is productivity improvements. In a growing economy, higher wages lead to productivity improvements in several ways: 1) happier workers work harder, 2) employers are more inclined to invest in technologies and training to get more out of each worker and 3) sweatshop foreign investors are replaced by higher value-added investors. Some industries dying out is not always a bad thing, provided the transition is handled deftly. While Thai politicians, like so many politicians elsewhere, may be a bunch of self-serving clowns, many technocrats within government are highly competent.

"You are fundamentally addressing the re-balancing of the global economy, and this should be achieved through the currency and not through internal inflation"

Currency values and inflation can be seen as two sides of the same coin. Some inflation has to be tolerated if one wants a weaker currency.

The point of economic growth is better living standards for all. I therefore agree with you that the rewards for Asian workers are long overdue. How else to achieve that except through higher wages? The strong currency hasn't led to appreciably lower consumer prices.

The West has indeed been living beyond it's means for decades (and prior to that, living on colonial exploitation) and a painful decade or two lie ahead as they adjust to a more sustainable standard of living. It won't be easy for us in Asia either because we are all tied together, and, unfair though it may be, we will all be affected. So our schadenfreude better be nicely sugared, because we might have to swallow it.

Meanwhile, Asia has it's own set of problems: poverty, environmental degradation, population imbalances, political repression and ethnic tensions, to name a few.

Let's hope saner heads prevail and we can navigate our way out to brighter and fairer times.

Cheers

T

Edited by Thakkar
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"However, on his first day in office, Thirachai said he would like to explore the impact of the central bank's effort to rein in inflation that could hurt the purchasing power of the people and the overall domestic demand".

Yeah right reducing inflation hurts the purchasing power of the people.

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However, on his first day in office,...

I think that sums up his interview. Hopefully he'll leave the tough decisions on interest rates, inflation and FX to the BOT who are far more qualified.

Basically the whole interview is political rhetoric by someone working out what his job is/should be. If he manages that, next step for him will be to try and adjust it to his own and/or the parties particular agenda. Economics has little to do with it :)

Edited by fletchsmile
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I'm not endorsing inflation per se. I'm saying that growth should be a more urgent priority. As long as growth stays ahead of inflation, things can be kept under control and an overall positive effect achieved.

Warning!

Here comes in a wide ball.

What is urgent about more growth? Getting more work and profit out of the Thais and continue to make them subsidise the decadent west?

Thailand is self-sufficient in food production, the climate is exceptionally pleasant and there is, essentially, not an urgent requirement to "pull all the farmers off the farms and plug them into factories, so the GDP can be grown".

Take a moment and scan/read this.

http://gaianeconomic.../pdf/Arbeit.pdf

The Thai lifestyle is still very family and friend oriented, they are also, in comparison to the UK for example, very resourceful and still have the freedom to start small businesses without any interference. Sure the big capitalists and big government can come in and say that this is all very inefficient, and claim they can make life better for all by industrialising, and regulating, and controlling, and taxing, but for the vast population do they want it?

Will they be happier?

Thailand is a place where tourists come from around the globe to relax on the beach and enjoy the food. For maybe two weeks of the year, the other fifty are spent working and worrying.

The Thais do not have to put in all that effort, they can enjoy it every day of the year with minimal effort.

Who is to benefit from all this urgent growth?

You are born, you live a bit and then you die. Why should the small number of years alive be spent serving someone else's Big Plan?

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