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Published on August 21, 2007

BOT Governor Tarisa Watanagase refused to say whether the meeting had discussed the possibility of revoking the 30-per-cent capital control requirement. She said only that it agreed that medium-term measures to stabilise the economy were needed, as the trend of global capital volatility would continue.

However, the measures to be implemented must not be an obstacle for the private sector in developing its risk management, she added.

"Global capital fluctuation will continue in future. Many countries are considering whether there should be other tools for support, apart from the interest rate," said Finance Minister Chalongphob Sussangkarn.

"However, any measure implemented is a trade-off that will affect the capital market's development.

"As a result, the authorities must weigh the good and bad impacts of any measure."

More than 20 top officials and executives of the state and private sectors and leading academics held a special discussion yesterday morning to brainstorm on a proper monetary-policy framework in preparation for volatility in the money market, particularly fluctuation of the baht.

Chalongphob, his deputy Sommai Phasee and Energy Minister Piyasvasti Amranand were among those who met Tarisa to discuss improvements to monetary policy in the medium term.

Tarisa said that all parties thought that they had diverse opinions prior to the meeting, but these were fine-tuned during the session. "It came out that actually we are talking about similar issues, but we lacked communication in plain language. Academics now understand us more and, in the

 

 

 

 meantime, we accept their comments to improve the situation," she said.

Narongchai Akrasanee, executive chairman of the Export-Import Bank of Thailand, said after the meeting that the 30-per-cent withholding tax measure had been raised as a topic. He did not elaborate, but said he firmly believed the measure should be revoked.

Chalongphob said the current inflation-targeting framework was flexible as it did not monitor pricing stability alone but also other economic factors. He said if the inflation rate stayed within the range of zero to 3.5 per cent, the central bank could focus on other problems.

Tarisa insisted that the bank was already monitoring price stability as well as the baht exchange rate, which reflected economic fundamentals and was in line with other currencies in the region.

For the short term, the BOT will seek to continuously reduce baht volatility, while ensuring that the effectiveness of any intervention is worth the economic cost, she said.

Chalongphob said monetary policy could not completely counter overall macroeconomic problems. The Kingdom's competitiveness must be raised by boosting productivity in the long term rather than fixing the baht at any particular level, he said.

He added that the meeting had not specifically discussed any measures, for example, the withholding reserve requirement or tax regulations.

Chalongphob said those present were already convinced that inflation targeting was suitable for the moment, and that there was a need to consider whether to implement any medium-term measures.

If there are any new measures for the medium term, they should be weighed against whether they compromise the foreign-exchange risk management of the private sector, he said.

However, there was no decision on any new measures at the meeting, as was widely expected by the market.

Chalongphob repeated that there had been no discussion of whether to reverse the capital controls. He said the 30-per-cent reserve requirement was still necessary for capital control in the short run and that no further measures were needed to supervise the baht.

Other meetings will be held to follow up the results and coordinated efforts will be made to put the revised policy into practice, he said.

A source at the meeting said that although the Finance Ministry did not propose that the central bank revoke the capital controls, some participants had raised the issue.

"The Bank of Thailand said it had to wait for the right moment before deciding whether to revoke the measures. The central bank also said the measure was not meant to stay forever, anyway," the source said.

He said he personally thought the capital-control measure should be revoked because it would be an obstacle to developing the bond market, especially when it is expected that liquidity will dry up soon because of the government's need for more money for future investment.

Finance Reporters

The Nation