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Published on February 13, 2008

Finance Minister Surapong Suebwong-lee yesterday beat a tactical retreat from a speedy lifting of the capital controls that have turned foreign investors off, saying he would make a decision before his international roadshow in March and April.

After a two-hour meeting with Bank of Thailand Governor Tarisa Watanagase and her team to discuss whether it was high time to drop the measure and rebuild investor confidence, Surapong indicated that he was not in any rush to scrap the reserve requirement outright.

"A clear-cut policy on the exchange rate must be finalised before I make a roadshow trip overseas next month and April," he said. "Before making the decision I would like to make sure I understand the situation completely."

Surapong said he did not want to delay a decision but he must be very careful in his analysis of all the scenarios.

"The central bank governor will report to me as soon as possible when she gets the information that I have requested," he said, without elaborating on what exactly he wanted.

Tarisa went to the Finance Ministry to defend the central bank's capital controls - if not her job. The central bank insists that the measure to stem capital inflows is still needed, although it has already been watered down considerably since it was imposed more than a year ago.

Now only foreign funds invested in fixed-income instruments for a period of less than one year are subject to the 30-per-cent unremunerated reserve requirement.

After the meeting, Tarisa, deputy central bank governors Achana Waikhwuamdee and Bandid Nijthaworn, and assistant governor Suchada Kirakul all kept their lips sealed. No details of the meeting were disclosed.

"It looks like play acting. The finance minister already knows what he wants," a source said.

Thanong Bidaya, top adviser to Surapong and a close aide of ousted prime minister Thaksin Shinawatra, is expected to come back from Japan in one week to help Surapong make the final decision.

Scrapping the capital controls will require a host of supportive measures be-cause the financial markets have already speculated that the baht would shoot up sharply when they are gone.

Surapong has given several interviews stating he would like to see the removal of the capital controls, which have dampened foreign investor confidence. The central bank argues that without the restrictions, the baht would have appreciated even more against the dollar and cramped exports.

The Finance Ministry and the central bank have clashed heavily on this issue. Earlier, the Finance Ministry's Fiscal Policy Office proposed that the BOT cut interest rates to narrow the gap with US rates before freeing up capital inflows.

The Finance Ministry sees the baht's strength stemming from the current-account surplus and inadequate channels for capital to flow out of the country.

Surapong tried to play down the conflict. "We largely share a similar view. There are only minor points of difference," he said.

The central bank is not independent of national policy, as the government has to be accountable to the people, he said, about his ministry trampling on the central bank's turf.

"However, the central bank has to make its own decision on the 30-per-cent reserve requirement and the Monetary Policy Committee will make a decision on interest rate policy," he said.

Top officials from the Budget Bureau, National Economic and Social Development Board, Fiscal Policy Office and central bank also briefed Surapong on the overall economic situation.

Wichit Chaitrong,

Anoma Srisukkasem

The Nation