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Published on July 16, 2007

Fixing the baht fluctuation rate must be based on the currency situation in at least four other countries, namely China, Malaysia, Singapore and South Korea, Dr Olarn Chipravat, honorary adviser to the Fiscal Policy Research Institute, said yesterday.

"Supposing China and Malaysia manage to contain appreciation of their currencies at no more than 5 per cent a year, Thailand should do the same," he said.

Speaking at a seminar yesterday on the current economic impact from the heavy baht appreciation, Olarn suggested that the BOT set a yearly target to contain the fluctuation first. The central bank, he said, then would have to gather essential information on capital flows through trade, investment and stock trading and on foreign borrowing to help in its work towards the goal.

In trying to control the baht, the BOT can sell bonds under an available quota approved by the Finance Ministry to financial institutions and the general public and use the money to buy US dollars that it will then deposit in US banks, he suggested.

While the interest rate to be paid to bond holders would be 3.5 per cent, the central bank's dollar deposit would fetch about 5 per cent interest. It can make use of the gains from this margin to compensate for the loss in capital reserve caused by the baht appreciation, he added.

Olarn said he had first proposed the same measure in January this year but nothing has happened. However, it is still not too late to fix the baht fluctuation rate as suggested to tackle the ongoing problem of currency appreciation, he said.

Olarn, a former president of Siam Commercial Bank, also suggested that the trade regulation requiring exporters to exchange dollars they make from each sale into baht in 14 days be scrapped. He said exporters should be permitted to hold foreign bank accounts or open accounts in US dollars in Thailand to benefit their business amidst the volatile baht situation.

Krungthai Bank president Apisak Tantivorawong said the problem of heavy baht appreciation could be partly solved by creating more demand for US dollars by permitting members of the general public to open bank accounts in US dollars with a higher interest rate in Thailand.

"Money from these accounts will benefit future trade deals made in dollars. We can turn the baht situation into an advantage," he said.

Meanwhile, former finance minister Somkid Jatusripitak yesterday said the current baht appreciation problem was not a result of Thailand's poor economic system but was a repercussion of the uncertain political situation that has shaken the confidence of local and foreign investors.

The baht appreciation has both advantages and disadvantages and the government should quickly implement measures to restore investor confidence. Holding a general election as soon as possible is one of the measures, he said.