Bank Of Thailand Chief Prasarn Shrugs Off Pressure

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BOT

Central bank chief shrugs off pressure

SARUN KIJVASIN

THE NATION

Prasarn Trairatvorakul

Financial experts back Prasarn in his latest battle with Finance Ministry

BANGKOK: -- Bank of Thailand Governor Prasarn Trairatvorakul appears fairly comfortable, even though a renewed conflict with the Finance Ministry could culminate in his dismissal.

"Personally, I feel no pressure," the central bank chief told reporters yesterday, adding that he continued working as usual.

newsjsFinance Minister Kittiratt Na-Ranong, who is also a deputy prime minister, wrote to BOT chairman Virabongsa Ramangkura, who read the letter out at the January 31 meeting with the board of governors. They were all warned by Kittiratt to take responsibility for failure in action, as the Monetary Policy Committee (MPC) has not lowered the policy rate to deter inflows of foreign capital, thus boosting the central bank's baht-stabilisation costs and resulting in accounting losses.

Since Prasarn took over, he has experienced three major battles with the Pheu Thai-led government.

First, Kittiratt and Virabongsa, who at the time was not yet BOT chairman, agreed to finance infrastructure projects with foreign reserves. They also teamed up to oblige the BOT to resume responsibility for the Financial Institutions Development Fund's Bt1.1-trillion debt.

Prasarn won the first battle but lost the second one.

When the central bank insisted that the government issue bonds to the BOT in return for foreign exchange - to help maintain monetary discipline - the government refused for fear that its public debt would expand.

However, in terms of the FIDF debt, the central bank accepted the obligation and called on commercial banks for assistance. Banks' contribution to the Deposit Protection Agency (DPA) was increased to cover the interest and principal payments.

Kittiratt and Virabongsa, as BOT chairman, are now pushing the MPC to cut the policy rate, which is currently 2.75 per cent. Virabongsa has suggested that the rate be cut to between 0.75 and 1 per cent so as to discourage fund inflows from the United States and Japan.

As chairman of the MPC - one of three policy committees of the central bank - Prasarn said the committee was ready to listen to all parties when it is ready to review the policy rate. The MPC will convene again on February 20.

Prasarn has apparently drawn strong support for this new battle.

Former finance minister Thirachai Phuvanatnaranubala has said Kittiratt should not "intervene" in the workings of the central bank because it could lead to economists getting a negative perception about Thailand's monetary policy.

Former commerce minister Narongchai Akrasanee, meanwhile, said the BOT's accounting losses were insignificant because they had been incurred to keep the entire financial system stable. Actual losses are low, stemming from higher interest expenses rather than interest gains, and this could be limited by slowing foreign-exchange intervention activities, he said.

Sawasdi Horrungruang, chief adviser to Hemaraj Land and Development, also said the Finance Ministry should have come up with better ideas in slowing down the appreciation of the baht, rather than just demanding an interest-rate cut.

"It's too cheap. Business could thrive when the lending rate was as high as 15 per cent. Why can't they now when the rate is just 5 per cent? The business sector's competitiveness is indeed eroded by fiercer global competition, political instability |and widespread corruption," he said.

Chanchai Boonritchaisri, assistant governor for the BOT's Management Assis-tance Group and secretary to the BOT board, said that despite the letter from Kittiratt, the board had no power to intervene in the MPC's decisions. Under the Bank of Thailand Act BE 2551, the board is tasked to set the central bank's direction, while the monetary, financial-institutions and payment-system policies are independently taken care of by three committees.

"Thus the board cannot order the MPC to either raise or cut rates," Chanchai said.

He also said it was difficult to pinpoint whether any decision made by committees was right or wrong, given that different circumstances needed to be taken into account. A policy that was approved at one time might be changed when circumstances change, but that does not mean there was a mistake in the implementation of the policy, he added.

"Implementing a policy involves several factors and the environment. If the environment changes, it [the policy] may change. This does not mean that the policy is wrong."

He added that policies could be implemented if the central bank considered them to be beneficial to the country and in compliance with government policies.

-- The Nation 2013-02-07

[Thai at Heart]

Well it would be interesting to know what they actually think about the situation of a strengthening baht.

Is it an issue or not?

[Robby nz]

Is the Baht actually strengthening or is it just that the US$ and Japanese Yen are dropping?

The Baht is steady against the NZ and OZ $ , if anything it has dropped a little.

Good for me as I have to bring some NZ$ there next month.

Anyway didnt Kittiratt say he wouldnt interfear, white lies seem to be in fashion.

[tominbkk]

Crooks, all of them.

[laocowboy2]

Although it is populist claptrap as normal from the minister et al, the really frightening thing is that Thailand has a finance minister that clearly has not a clue about how monetary policy works, and why.

Regarding the value of the THB, the first question to ask is 'against what'? And a trend is more important than any point movement. If there is (which I doubt yet nyway) a clear trend of the THB rising against most other currencies, then first ask what the effects are. In simple terms imports become cheaper (oil especially) but Thai exporters get less THB for each unit exported unless they have the pricing power to charge more. Inflation tends to drop. In more complex terms, what matters most of all is the movement in the THB against the currencies of (a) Thailand's main export customers and ( its main export competitors (think India and Vietnam for rice and Malaysia for electronics) or competiotors for inward FDI (think Honda building its next export plant in indonesia rather than Thailand).

Finally, the government needs to remember that the THB exchange rate is only one factor in the financial equation facing businesses. They can offset a strong THB by cutting import duties on some of the foreign inputs for production, by cutting various fees and taxes or by loosening some regulatory barriers.

But all that requires sober and careful consideration ...... so basically we are screwed.

[Osiris]

You cannot simply look at just one factor of the equation. The baht by itself is not the big picture. Add in the history of "boom and bust" in Thailand, the over built city of Bangkok, the rice pledging scam, the increase in public debt, the increase in minimum wages, the 100,000 baht tax rebate for cars, the flood and resulting lost revenue, the regional markets that are emerging, the looming ASEAN community, the bottleneck in the "educational" system, the culture of corruption, the culture of lying, the racism against anything not Thai, and the picture is far different. Not to mention the inevitable...

In my opinion, don't bring money here unless you are willing to lose it. In addition, stop spending money here and help increase the rate of the eventual collapse of the economy. Then pick up the good parts at a decent price. Of course you can always spend your money here, I don't mind....

[millwall_fan]

As a small businessman in the tourist sector, the strong baht is affecting my business to a great extent - my costs are ever spiralling, but I cannot pass these on to my customers as they have little spendable income.