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Published on March 10, 2008

The authorities are considering starting up the country's own sovereign wealth fund to invest some of the US$100-billion (Bt3.15 trillion) foreign reserves in high-risk securities, beginning with $5 billion or $10 billion.

"We could establish a small fund like South Korea and expand it later," Suchada Kirakul, Bank of Thailand assistant governor, said last week.

The fund would draw from the Banking Department's ac-count, which holds about $60 billion.

But through its currency reserves account, the Bank of Thailand has accumulated altogether more than $100 billion in international reserves from running current-account surpluses and buying up the US dollar to rein in the baht.

Thailand, like most other emerging economies, is thinking how to manage its growing hoard of foreign currencies.

The Bank of Japan has just seen its international reserves shooting past $1 trillion, triggering a local debate over whether it is also time for Japan to have a sovereign fund of its own. But the issue is touchy because its reserves have come largely from debts.

The Thai sovereign fund would be weighted in riskier assets such as stocks, which have proven to generate more impressive returns than fixed-income instruments over the long haul, although they are volatile in the short term, Suchada said.

Without mentioning any time frame for establishing the fund, she said the stronger the baht becomes the better the chances of gaining good and cheap assets. According to the Inter-national Monetary Fund, sovereign wealth funds around the world are expected to grow to $6 trillion-$10 trillion in five years from $2 trillion-$3 trillion now. The funds have been in operation since 1950 but have just expanded rapidly just the past 10-15 years.

The five largest funds belong to the United Arab Emirates, Norway, Saudi Arabia, Kuwait and Russia. China's $200-billion fund and Korea's fund were just launched a few years ago.

The fund's establishment must be authorised under the Bank of Thailand Act, which has just allowed the central bank to put its money in secured debt securities guaranteed by governments, and financial instruments issued by international organisations of which the Kingdom is not a member.

Anoma Srisukkasem

The Nation