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Published on August 17, 2007

Finance Minister Chalongphob Sussangkarn withdrew draft amendments to the Currency Act on Wednesday before the National Legislative Assembly (NLA) had the chance to take the matter up for deliberation. The minister made the right choice when he decided that he would rather err on the side of caution and rescheduled deliberation on the Currency Act to September 12.

This piece of legislation is too important to Thailand's financial system in general, and to the interim Surayud government in particular, to be thrown to the sharks in the NLA before both the finance minister and the central bank can make sure they are able to defend it effectively against a vociferous opposition led by a group of anti-government assemblymen.

The opposition in the NLA, which has connections to an influential newspaper group and some top military leaders, has already delivered a couple of devastating blows to the Surayud government.

First, they shot down a proposal put forward by Chalongphob's predecessor, MR Pridiyathorn Devakula, to re-introduce two- and three-digit lotteries earlier this year. Then they humiliated Commerce Minister Krirk-krai Jirapaet last week by torpedoing the draft amendments to the controversial Foreign Business Act, which were widely seen as a sensible compromise.

Chalongphob now wants to make sure that the Bank of Thailand is given enough time to educate members of the public on why it is important to get the draft amendments to the Currency Act passed into law.

The main point of the proposed amendments is to reduce the government's exposure in financing debts incurred by the Financial Institutions Development Fund (FIDF) from the bailout of financial institutions.

As things stand, the central bank is obligated to issue bonds to absorb the principal debts, while the Finance Ministry has to shoulder the interest burden. But the bonds can be issued only when the central bank incurs operating profits.

Now, however, with accounting losses as a result of the baht intervention, the central bank has found itself in no position to finance the principal, which puts the Finance Ministry in a tight spot as it has to take on both the principal debts and interest burden. By limiting its exposure in financing the FIDF, the central bank would have greater freedom to intervene in foreign-exchange rates to deal with the overwhelming inflow of capital, which calls for quick responses.

Those who oppose the draft amendments to the Currency Act are not averse to manipulating facts and figures to mislead the public in their attempts to undermine the credibility of the Surayud government. For example, they are accusing the government of trying to "whitewash" the alleged mistakes made by Bank of Thailand chief Tarisa Watanagase in the central bank's management of foreign-exchange policy that resulted in huge financial losses.

That is beside the point. At its current stage of economic development and integration in the global economy, Thailand needs to pass the Currency Act amendments and the whole package of proposed amendments to financial laws, including the Financial Institutions Act, the Bank of Thailand Act and the Deposit Guarantee Institution Act, in order to strengthen its financial system sufficiently so that it can withstand the impact of new global financial turbulence.

It may be futile for the Finance Ministry and the Bank of Thailand to try to convince the opposition in the NLA to be sensible, as they seem keen on using nationalistic rhetoric to shoot down these important pieces of legislation. They should be basing their decisions on rationality, utilitarian principles and long-term national interest. It is also not too difficult to see that some of those opposing the legislation in the NLA want to stir up unnecessary controversies over important legislation in order to raise their profiles so that they can launch political careers in the general election.

Chalongphob is going to need all the political lobbying skills that he can muster in order to get the Currency Act and other proposed amendments to financial laws through the NLA.