• 
• 

Published on March 3, 2008

The Bank of Thailand's abrupt decision to revoke capital controls may help extend Governor Tarisa Watanagase's term in office.

But most observers interviewed by The Nation are betting on how long Tarisa could continue amidst strong political pressure.

Tarisa said on Friday she remained committed to her job. But a source close to the Finance Ministry said "her days are numbered. The government needs a central banker who can boost the market".

Another source, however, said the decision to remove the 30-per-cent reserve requirement could ease pressure on Tarisa.

In spite of her earlier insistence that capital controls were necessary, Tarisa on Friday decided to revoke the controversial requirement meant to halt the rise of the baht. Its cancellation led to speculation that Tarisa had finally succumbed to political pressure. The People Power Party campaigned on a pledge to end the controls.

The lifting of the controls came one day after the return of deposed Prime Minister Thaksin Shinawatra to Thailand.

Now that capital controls have been removed, the question is what is next for Tarisa?

Earlier on Friday, two events led to speculation something was about to happen at the central bank.

Its domestic-economy director Amara Sriphayak hinted early in the day that many factors supported the removal of controls.

Former deputy prime minister and finance minister Virabongsa Ramangkura criticised the bank during a seminar, saying it had mismanaged the economy by setting higher priorities on stability rather than growth.

Tarisa's future at the bank was in doubt since the election of a People Power government.

Within a month in office, the Samak Sundaravej government has transferred four officials in an apparent move to install people it trusts in important positions. Will Tarisa be number five?

The central bank had maintained many times that it would not end capital controls unless the environment was supportive. It wanted to see exporters stop currency speculation, a slowing of the local unit's appreciation and imports rising to levels that ease demand for baht.

None of these have happened. The rise of imports in the fourth quarter is no real indicator.

Besides, the bank should have ended controls in the second half so those who have hedged currency risk would not trigger a further rise in the baht by converting dollars into local money too soon.

The cancellation should have come after the bank had more tools at its disposal following the enactment of the Bank of Thailand Act.

Tarisa and her deputies have earned the reputation as "iron ladies" for their efforts to enforce monetary stability. Some might criticise them as too conservative, but these women were respected for their refusal to compromise on principles.

However, the People Power Party has a different aim. It wants to promote economic growth. Finance Minister Surapong Suebwonglee said during the election campaign his priority was to cancel capital controls. He said the measures were unfriendly to stock investors. He also promised to cut interest rates to promote growth. On Wednesday, the central bank kept the rate unchanged.

Securities and Exchange Commission secretary-general Thirachai Phuvanatnaranubala has emerged as a challenger to Tarisa.

Thirachai impresses Surapong, who early on Friday complimented Thirachai on his monetary-policy management proposals, describing them as "interesting".

Thirachai gets along better with Surapong's economic advisers Pansak Viyaratn and Nipat Pukkanasut. Both key men in the Thaksin era share pro-growth objectives.

Thirachai earlier suggested the central bank adopt a band-basket-crawl exchange-rate policy used by the Monetary Authority of Singapore.

Surapong insisted on Friday he did not plan to remove Tarisa but the market does not believe him.

However, the government may soon find it harder to sack Tarisa.

The Bank of Thailand Act, expected to come into force in a matter of days, protects the central banker from political intervention.

It says the finance minister cannot remove the bank governor without evidence of malfeasance or incapacitation.

Anoma Srisukkasem,

Jeerawat Na Thalang

The Nation