Chalongphob a pro-market academic for a reeling economy
In recent memory, we have had a marketer (Dr Somkid Jatusripitak), a career bureaucrat (Suchart Jaovisidha), a banker (Dr Thanong Bidaya) and another banker (MR Pridiyathorn Devakula) serving as finance minister. Now it is the turn of a pure academic, Chalongphob Sussangkarn, to take on the finance portfolio.
But who is Chalongphob? Can an academic run the Finance Ministry? Is he going to introduce any measures that will shock the market?
Few people in financial markets know Chalongphob, the former president of the Thailand Development Research Institute (TDRI), well enough. They only have the broad impression that Chalongphob and the TDRI have been producing academic works that are rather pro-market, and that having a pro-market academic running the Finance Ministry won't be too bad. At the very least, he is not expected to show any distrust of the financial markets as Pridiyathorn did.
The last time people in financial markets heard Chalongphob's views was when he came out to criticise the Bank of Thailand's tough medicine to halt the appreciation of the baht and protect the export sector. The central bank was so desperate to prevent the baht's rise that in December it introduced Chilean-style capital controls, requiring investors to park 30 per cent of the total capital they brought into Thailand in a non-interest bearing account for at least a year.
This measure shocked investors, who headed for the exit. Sentiment in Thailand has yet to recover from that surprising episode. Chalongphob said that the medicine banking authorities introduced to curb the rise of the baht was too strong and that they should have explored other administrative measures to manage foreign exchange policy. If capital controls were really needed, he said, why not start at 2 per cent first. He added that there was also room to cut interest rates, which would have also helped ease the baht's rise.
Chalongphob's view clearly showed that he is open to business, whereas Pridiyathorn and the central bankers had developed a mistrust of financial markets. Capital controls were introduced without the government consulting any regulatory authorities involved in the financial markets.
Chalongphob's TDRI was also pro-business when it came to the amendments to the Foreign Business Act. One of his colleagues, Deunden Nikomborirak, who represented a minority voice on the panel formed to revise the Act, had called for a liberalisation of Annex III, which mostly covers the service sector.
More than 10,000 foreign companies already operating businesses in this country might be affected by the legal amendments on the ownership question. Instead of blocking foreign competition, the Thai authorities should have done away with domestic monopolies, which would have created a level playing field. During the Thaksin era, Chalongphob came out from time to time to criticise the government's populist policies. He and the TDRI disagreed sharply with the Thaksin government's policy to use state-owned banks to finance his ill-conceived projects.
They also objected to any mischievous attempt to conceal state financing of the populist projects in the budget's off-balance sheets. However, the TDRI had a rather positive opinion of the Bt30 healthcare scheme. But former prime minister Thaksin Shinawatra was so mad at Chalongphob and the TDRI that he vowed that his government would never commission them to conduct any research.
So what do the financial markets expect Chalongphob to do?
First, he will have to address the capital controls, although they have been significantly watered down since their introduction. With interest rates likely to be cut sharply over the remainder of the year, the capital controls will not be needed. Still, banking authorities can always resort to other administrative measures, such as requiring investors to hedge the dollar to neutralise volatility. But there must be a public-relations exercise, for the sake of market sentiment, to claim that the capital controls have been removed.
Second, Chalongphob is expected to accelerate the budget's disbursement to ensure that at least 90 per cent of 2007 funding is spent. During this time of economic weakness, the investment portion of the budget will provide a catalyst for growth. Chalongphob should stick to the mega-mass transit projects which Pridiyathorn has done the groundwork on. Third, Chalongphob should move quickly to explain his view on amendments to the Foreign Business Act to investors. If there is no chance that the law will be passed by the National Legislative Assembly, then he should advise the Surayud government to withdraw it. Probably, it would be better left for the next government to handle.
Fourth, Chalongphob might have a hard time handling officials at the Finance Ministry who have been demoralised by the indictment of their colleagues at the Revenue Department for their handling of the Shin Corp deal. Political meddling in the Finance Ministry is inevitable as Chalongphob, as finance minister, will be writing the cheques. This political pressure will be substantial.
Fifth, if Chalongphob can carry the Finance Ministry until the end of the interim government's term with no other strange measures to disrupt the market, then the financial markets will be happy enough.
Let's give Chalongphob a chance to run the Finance Ministry. After all, he may not be an exciting candidate but he is not a bad choice. After the end of the Thaksin era, we are seeing a revival of the TDRI "gang", which includes Pridiyathorn, Kosit Panpiemras, the deputy prime minister and industry minister, Dr Piyasvasti Amranand, the energy minister, and now Chalongphob.