Bank of Thailand Governor Tarisa Watanagase yesterday insisted the Kingdom was not ready to do the same as some other regional economies. "The timing is not good," she said. "Our foreign-currency reserves are not as high as those of others."

Tarisa added that the bank would continue for the moment to manage reserves using the draft currency law, before deciding whether it allowed more flexibility in their management.

She believed there would be an "increasing ability to invest in widening channels".

There are suggestions Thailand should adopt what countries like China and Singapore do - use a special body to separately invest foreign-currency reserves in overseas assets, including companies.

Bank assistant governor Nitaya Piburatanagit said the new act would allow investment in secured financial instruments issued by international organisations of which the Kingdom is not a member.

It can put money in highly rated financial instruments of foreign private companies or instruments such as derivatives. However, any investment will continue to be made by the central bank, not a separate body.

The country's reserves have accelerated dramatically due to the huge amount of capital flowing into Asian countries seeking higher returns. Money has left US assets out of concern over diminishing value from that country's twin deficits.

Thailand's high current-account surplus - due to healthy exports - has aided the jump in reserves. This year's surplus is expected to be between US$4 billion (Bt138 billion) and $6 billion. Last year it was $3.2 billion.

At June 1, official reserves were the equivalent of $70.6 billion plus $10.5 billion in forward obligations, making the net reserves $81.1 billion.

This is a marked increased from $57.9 billion with $5.4 billion in forward obligations at the same time last year.

The National Economic and Social Development Board earlier encouraged the Bank of Thailand to spend reserves on government mega-projects.

The bank rejected the suggestion on the grounds that it was a fiscally ill-disciplined move and would set a bad example for subsequent governments.

Asian countries have tried to reduce pressure from rising reserves by seeking investment channels providing safe returns.

Singapore government investment body Temasek Holdings is the blueprint and has experienced a high degree of investment success, both locally and overseas.

China recently formed a corporation to manage $200 billion of its $1.1 trillion in foreign reserves.

South Korea has the Korean Investment Corp managing $17 billion of central-bank foreign reserves and $3 billion of its foreign-exchange stabilisation fund. The government contributed another one trillion Korean won (Bt37 billion) to the corporation.

At the end of May, South Korea's foreign-currency reserves were $250.7 billion, up 1.4 per cent from a month earlier.

Japan does not have a similar institution, although it is sitting on $911 billion in reserves. These hit a record $915.6 billion in April, but then declined for the first time in five months due to rises in overseas interest rates.

Anoma Srisukkasem

The Nation