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Published on February 28, 2008

As the baht appreciated to a fresh 10-year high at 32.10 to the US dollar yesterday, experts suggested the government set up a sovereign wealth fund to invest in overseas markets to help balance capital flows and lessen the pressure on the currency.

Kanit Sangsubhan, director of the Fiscal Policy Research Institute and member of the Association of Capital Market Alumni (CMA), asked the government to set up a fund called Thailand Investment Corporation.

The baht has appreciated sharply against the dollar partly because there are only limited funds flowing out of the country compared with much larger inflows.

The baht rose yesterday after the Bank of Thailand announced it would keep its policy rate unchanged at 3.25 per cent. The baht opened in the morning at 32.20 to 32.21.

Some experts have long urged the central bank and the government to utilise foreign reserves currently close to US$100 billion (Bt3.21 trillion) by allocating them for investment in overseas assets.

Similar sovereign wealth funds exist in China, Kuwait, Singapore, the United Arab Emirates, Russia and Norway, while several have made a $60-billion cash injection into Western banks struggling with the fallout of the US sub-prime crisis.

Concerns about state-run investments were aired at the World Economic Forum in Davos last month, especially about funds founded in the Gulf and other oil-exporting states or in Asian exporting countries seeking to invest their reserves.

Sovereign wealth funds are estimated to manage about $2.5 to $3 trillion, with five countries managing about 70 per cent of the total, Lehman Brothers chief executive Richard Fuld said at the time.

He said the amount under management could rise to $15 trillion to $20 trillion in the next five years.

Former US Federal Reserve chairman Alan Greenspan said on Monday that opposition to investments by Gulf and Asian sovereign wealth funds in the United States did not serve American interests.

"I suspect that most of the negative response is driven by protectionism. In fact, I don't suspect it, I know it," he told a corporate leadership forum in the United Arab Emirates.

"I think that is extraordinarily counter-productive because the United States has probably gained as much, if not more, from globalisation."

Securities and Exchange Commission secretary-general Thirachai Phuvanatnara-nubala yesterday urged the central bank and the Finance Ministry to change their way of exchange-rate management by learning from Singapore's experience.

He said the Bank of Thailand should adopt the Band Basket Crawling (BBC) implemented by the central bank in Singapore. Singapore has a band target in mind but does not reveal it to the public. If the Singapore dollar moves out of the band, the central bank will intervene in the exchange rate market in order to ensure stability.

Thirachai expects the Bank of Thailand to cancel its 30-per-cent reserve requirement on capital inflows due to its negative implications on the financial market. He said the

 

central bank and Finance Ministry should adopt Singapore's model. Then they should announce to the public clearly that authorities will not allow the baht to appreciate against the US dollar faster than other regional currencies.

He urged the central bank to intervene aggressively in the market to keep the baht in the band with full support from the Finance Ministry.

Finance Minister Surapong Seubwonglee responded by saying that changing the exchange-rate regime was not an urgent issue since it needed more study.

Meanwhile, to boost investment in the stock exchange, the CMA yesterday urged Surapong to put privatisation on the national agenda so that there are new products on the bourse.

Kanit suggested the government allow representatives from the capital market to play a role in planning economic policies. Currently only four key institutions - the Finance Ministry, Bank of Thailand, Budget Bureau and National Economic and Social Development Board - participate in forming economic policies.

Surapong brushed aside the proposal, saying state enterprises still have problems to solve. But he promised to set up a national committee, to be chaired by himself, to look at capital market development.

Kanit also urged the government to reform related taxes while Kongkiat Opaswongkarn, chief executive of Asia Plus Securities, urged a relaxation in work-permit requirements so that talented workers could be brought into the Thai capital market.

Thailand's market capitalisation is only Bt6.5 trillion, or 79 per cent of the size of the economy, compared to 200-300 per cent in developed countries, which suggests easier accessibility of their companies to funds.

Wichit Chaitrong, Siriporn Chanjindamanee

The Nation, Agence France-Presse