The governor was in Tokyo for a symposium sponsored by the Bank of Japan entitled "10 years after the Asian currency crisis".

She explained the need to introduce the stringent 30-per-cent capital-reserve requirement on December 18.

"A measure like this, by nature, is short-lived. I believe in order to come up with more sustainable solutions, international policy dialogues, such as the International Monetary Fund-initiated Multilateral Consultation, will need to be strengthened," Tarisa said.

"Short of regional or global coordinated efforts, some unnecessary and painful adjustments may have to be introduced, no matter now strongly committed we are to the conventional market mechanism."

However, a financial source said consulting the IMF was not a good idea, as the international agency has apparently supported stronger Asian currencies. It has often told China to be more flexible in its foreign-exchange regime, saying this will help fix global imbalances.

Despite a solid domestic economic situation, Tarisa said Thailand must remain vigilant. She said the nation was facing major problems with global imbalances and "large and volatile" capital inflows.

The recent surge in capital inflows had caused a one-way appreciation of the baht relative to regional currencies to the point that it may have become detrimental to the competitiveness of exporters, she said.

Later, during a panel discussion, Tarisa added that all nations must play a part in cutting the imbalances without relying excessively on greater exchange-rate flexibility in Asia alone.

"Much has been said about what the major countries should do to restore the balance, but little has been achieved," she said.

The governor said the key for Thailand was to make sure the baht did not move further ahead of other regional currencies and to ensure a turnaround in domestic demand.

Conventional market mechanisms did not deal with the appreciation, so the government had to impose a requirement on capital inflows to put a break on the one-way momentum, she said.

The central bank chief said domestic inflation remained under control and comfortably within its desired range of zero to 3.5 per cent.

She added that external debt was half the level of its peak in 1997, when the Asian financial crisis started. But the governor said external debt had picked up recently and was being closely monitored.

Domestic economic growth is expected to strengthen because of the softening in oil prices, which had hurt growth over the past two years, and an increase in private investment in the second half of last year, she added. 

The Nation,

Dow Jones Newswires