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Published on July 23, 2007

Breaking his silence for the first time since resigning from the Surayud Cabinet earlier this year, Pridiyathorn, in a seven-page article, expresses his opinions on how the government should handle upward currency pressure.

The baht is trading at Bt33.60 to the greenback, prompting concern that allowing it to appreciate further will hurt Thailand's competitiveness as a whole.

Pridiyathorn argued pushing the exchange rate to Bt36 to the dollar - as proposed by noted economist Dr Virabongsa Ramangkura - might be counter-productive. It could lead exporters to become complacent.

A recent University of the Thai Chamber of Commerce survey showed exporters wanted the baht at Bt35.50 to the dollar.

"Considering the value of other Asian currencies at this moment, keeping the baht at around Bt34 to Bt35 would be enough to compete and, at the same time, deliver a message for exporters not to be complacent and to adjust themselves for future change," he argued.

From the tone of his article, it appears Bt32 is as strong as the Bank of Thailand (BOT) will allow the currency to get.

Pridiyathorn appears to defend the central bank's protection of the baht, which has come under severe criticism. He expressed support for a continuation of capital controls to rein in baht appreciation.

The BOT introduced the controls in December 2006, while Pridiyathorn was serving as a deputy prime minister and finance minister. The controls on equity investment were removed the following day after a stock market crash.

The control package hurt the political capital of Pridiyathorn, who has not yet made it clear about his political future after leaving the government.

He explained rapid baht appreciation was due to the country's trade surplus and net capital inflow. It might be convenient for the central bank to buy dollars to keep the baht down, but Pridiyathorn said in practice exporter and importer confidence plays a key role, too.

"When the market reflects on the stronger baht exporters swiftly sell and importers delay purchases. Subsequently, the excessive US dollars to be handled will increase many times rapidly - so much so it is impossible to be drained out in a very short period of time," he said. "The baht, as a result, becomes stronger.

Pridiyathorn said recent foreign-exchange liberalisation measures proposed by the BOT to curb the baht might not be effective enough.

A more timely measure to help push the currency down is for state enterprises to accelerate foreign-debt repayment. "These state enterprises drew down the loans at a time when rates were at Bt39, Bt38, Bt37 or even Bt36 to the dollar. Paying back loans when the current rate is at Bt33.50 will definitely be profitable," he said.

Pridiyathorn expressed disappointment the Finance Ministry failed to follow through with early debt repayment for state enterprises, although Deputy Finance Minister Sommai Phasee agrees with the idea.

Another measure to stem the local unit is to encourage importers to make import payments at sight, instead of extending for dollar settlements.