EDITORIAL

Finance minister is responsible for fiscal discipline

The Nation

The govt seeks short-term political gain through populist spending as state-run banks amass huge losses

BANGKOK: -- The letter sent by Deputy Prime Minister and Finance Minister Kittiratt Na-Ranong to the Bank of Thailand's (BOT's) board of governors accusing them of negligence for failing to impose a rate cut cannot be seen in any other way except a government attempt to intervene in the central bank's operations.

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Kittiratt, in his capacity as finance minister, might be entitled to put pressure on the central bank, but there is an ethical question here as to whether the government is "threatening" the BOT to make certain decisions to serve the government's purpose.

Of course, governments elsewhere have tried to convince central banks to implement monetary policy to respond to their policy platforms. The Japanese central bank recently implemented "monetary easing" in response to Prime Minister Shinzo Abe's attempt to fix the sluggish economy. The US Treasury is pumping money into the system to tackle the massive deficit and unemployment, which were both high on the agenda of President Barack Obama during his election campaign.

But the decisions of those "central banks" are based on factual information and the thorough consideration of monetary experts. Economists may have different approaches when it comes to economic theory and how to boost sluggish economies. They may also be proved to be wrong later. But monetary decisions should be made in good faith to ensure the credibility of the fiscal policy. Any critical decision affecting a nation's financial interests should not be overly influenced by people in power.

Kittiratt said he was concerned over the BOT's accounting loss of over Bt530 billion at the end of 2012, largely incurred through foreign-exchange-stabilisation measures. Kittiratt said he wanted BOT chairman Virabongsa Ramangkura to relay his concerns over the huge loss to all members of the board. But it is obvious that the man in the hot seat is BOT governor Prasarn Trairatvorakul.

The letter from Kittiratt has only reaffirmed the market perception that the government is trying to rattle Prasarn's seat. Kittiratt has tried to deny this. But that might not matter, since the market has bought the perception, affecting the credibility of the monetary institution.

This doesn't mean Prasarn is error-proof. The BOT's approach to ensure monetary stability can be debated. The central bank might have to look at more effective ways to protect stability by, for instance, reducing the weight of US dollars on the movement of the baht, and placing more importance on regional currencies.

At any rate, independent economists and international institutions such as the International Monetary Fund have apparently approved the performance of the BOT and have not raised the issue of the bank's accounting loss as a severe matter. They generally believe that the process is transparent and explainable because it is a means to ensure stability.

In fact, a cut in the interest rate might not have a direct effect of weakening the baht, as Kittiratt hopes to see. An interest rate cut may not directly influence capital inflow. No one can guarantee if a substantive cut would prevent the inflow of foreign capital. If the timing of a rate cut is not right, especially if household debts are rising, it could soon lead to economic bubbles.

Kittiratt cited the issue of accountability in the letter to the BOT board. And this is the same question that should be asked of the Finance Ministry regarding losses at the state-run bank. The government is facing dire losses at the Small and Medium Enterprise Development Bank (SME Bank) partly because of its extravagant populist policies. In addition, politicians tend to put pressure on state banks to relax loan requirements to some borrowers who might not have the capacity to service their debt. This has led to a proposal to fix high non-performing loans at SME Bank by merging it with another state bank, the Government Savings Bank.

The Finance Ministry will have to be fully accountable for the losses of state banks like SME because the banks' staff has to follow the instructions of the government, which aims only for short-term results. The Bank for Agriculture and Agricultural Cooperatives is also facing huge losses because of the government's rice price subsidy policy, which is also believed to be blighted by massive corruption.

These state-run banks are directly under the supervision of Kittiratt. And his accountability and responsibility are called for. Instead of sending letters to the central bank, Kittiratt should spend time looking into these state-run banks before their non-performing loans increase and affect the credibility of the entire system.

-- The Nation 2013-02-09

"... there is an ethical question here as to whether the government is "threatening" the BOT to make certain decisions to serve the government's purpose."

BINGO. Manipulation to suit the failed populist policies and still they want to 'borrow' 2 trillion to keep the lies alive yet run the country further into the ground.

I always find it amusing when some people praise the PTP government for the economic prosperity; they have been borrowing money like there's no tomorrow, of course there's more money around now, it doesn't mean that it's a sustainable situation.

Just read through todays news and there are many items costing billions and millions, didnt bother to add them all up but it must add up to a fair hike in Govt spending.

Then there is the setting up of a new minestery of water, new premises and jobs for more of the boys, how much is this going to cost?.

This is only in one day and a saturday at that, could it be they are getting a little carried away?

Why SHOULD they worry. It isn't their money anyway and when the worst case comes thhhhhey can always blame the Democrats who will end up clearing up the mess as they did in 1997.

State run Banks run up Hugh losses, now hang on a minuet, didn't Miss Yingluck just announced 2013 is the year for Thailand, what a poor one.

Hugh losses?

I bet he's not pleased...whoever Hugh may be...

Edited February 9, 201313 yr by Greer

Hugh losses?

I bet he's not pleased...whoever Hugh may be...

Can't be Hugh Khao given the stockpiles

Can Kittirat also be held responsible for the corruption cancer in this country?

Print more money, that's the answer, just follow the examples of the US and Europe.. Don't try and fix the leak, just keep bailing.