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Published on August 20, 2007

The Finance Ministry plans to ask the central bank today to abandon its unpopular capital-control measures and instead adopt an exchange-rate target for the baht that mirrors regional currencies.

Bank of Thailand Governor Tarisa Watanagase has invited Finance Minister Chalongphob Sussangkarn, Deputy Finance Minister Sommai Phasee, well-known economists including Ammar Siamwalla and Olarn Chaipravat, academics, industrialists and businessmen to discuss foreign-exchange management strategy at the central-bank head office today.

Tarisa said on Friday that the central bank would ask the economists for suggestions on sharpening forex policy-making to cope with the recent baht volatility and possible global spill-over from the US mortgage-securities turmoil in the medium term.

"We are open to ideas from them," she said.

The Bank of Thailand has come under attack from some economists and members of the National Legislative Assembly for "mismanaging" the currency because it does not seem to have a clear strategy.

A source said 47 top brains of the country had been invited to the meeting, some of them critics of the central bank.

A Finance Ministry source said officials had prepared a set of recommendations for their minister to propose. The officials want the 30-per-cent unremunerated reserve requirement revoked to eliminate the discrepancy between onshore and offshore markets for the baht.

Sommai earlier voiced concerns over the wide exchange-rate spread between the two markets. However, his concern was played down by Chalong-phob.

"Khun Sommai thought that the wide gap of the baht in the onshore and offshore markets was testimony to the failure of the government's policy direction."

Another Finance Ministry source said Chalongphob did not wholeheartedly agree with the 30-per-cent capital-control requirement but the minister thought it was the "right time to make the case to the central bank".

The Finance Ministry sees the sub-prime mortgage crash as presenting a good reason for the central bank to change its policy direction now, the source said.

Instead, the government should manage the baht level like neighbouring countries such as Singapore and Malaysia, which set a target rate for their currencies to ensure their prices are competitive, the source said.

When the dust from the US mortgage-market crash settles, the baht will rise against the US dollar again, the source said, and the government will have to be prepared for that by managing the baht's level, instead of letting it float free while other competitors manage their currencies to maintain their export edge.

Twatchai Yongkittikul, secretary-general of the Thai Bankers' Association, said the meeting today was designed to be a forum where the central bank would appraise its previous policy.

He said he did not plan to make any specific proposal.

"We will probably exchange views, and the central bank will use the opportunity to explain the situation to some critics."

The Bank of Thailand recently announced measures to weaken the baht, such as extending the period that exporters can hold onto foreign currency.

Yet Twatchai attributed the recent weakening of the baht and other regional currencies to the implosion of the US mortgage-securities market.

Pramon Suthivong, chairman of Thai Chamber of Commerce and the Board of Trade of Thailand, said the central bank would listen to feedback from the private sector on how authorities should deal with the baht.

Pakorn Malakul, the Bank of Thailand's former deputy governor, also saw no need to take more steps.

"I think the central bank's current measures are sufficient to manage foreign exchange. They are in fact good measures."

Santi Vilassakdanont, chairman of the Federation of Thai Industries, said the FTI did not have any special agenda.

"But we may ask about the planned foreign-reserve fund, which should manage inflows and outflows to curb currency swings."

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