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Published on March 17, 2008

Specifically, whether Thailand will turn back to the fixed-rate regime. After rounds of discussions and arguments by experts, not to mention politicians, allow me to share my views.

1. Why bother? As long as we understand what they are, there's no need to argue about them. Historically, Thailand has used various policies in determining the value of the baht. Instead of debating fixed or floating, we should discuss what is the current situation and then which policy should we go for.

2. In this digital age, we cannot deny the power of capital flows, which are both swift and massive. In a relatively small economy like ours, which relies heavily on external earnings, a "stable" exchange rate is very desirable. If we only had a policy of diminishing the volatility of the exchange rate, affected parties, especially exporters, would love to see it.

3. There's a big misperception concerning terminology - "stable" or "controlled" exchange rate. To have a stable exchange rate, it's not necessary to control the mechanism by using a kind of trade embargo policy. The rationale is that any mechanism that does not reflect the beauty of the market always has various "hidden" costs - not to mention difficulties when we want to dump it. A good example is the just scrapped "30-per-cent" rule.

4. To achieve a relatively stable exchange rate via a basket of currencies is not taboo. Indeed, if we understand what led Thailand to the financial meltdown of 1997, it was not the exchange regime itself but passive and unresponsive policy management together with the "silo" style of management. To recap, a big and persistent imbalance between interest rates and exchange rates provided a good (if not the greatest ever) arbitrage opportunity for the global financial markets to enjoy "no sweat" profit. Policymakers at that time reacted passively to the situation and forcefully floated the baht only at the last minute.

5. Now, in the year 2008, the landscape is quite different. Evidently, the "risk free" interest rate market has been widened and deepened enough to absorb a shock. Hence arbitrage profits are a thing of the past. It's correct if Thailand sticks to the current "managed float" system since it reflects the "real" exchange rate with respect to demand for and supply of foreign currencies. But, wait a minute, we need to make ourselves believe that we have been in such a situation. With a "non-tariff" barrier type of rule, I do not think we have. Additionally, we need to make sure that the manager of the country's reserves is a world-class financial team that profoundly understands the ever-changing financial markets, reacts proactively and is well disciplined.

6. The revisiting of the basket-of-currencies scheme does no harm. In fact, it would help reduce the volatility of the baht and provide the real sector with a much sought after numerical target of its value. A series of careful steps, however, must be mapped out before the launch of the scheme. To mention a few: a thorough study on the "appropriate value" of the baht for fixing on the launch date, how wide the band is going to be and, most importantly, how well policy-makers can understand and feel the pulse of financial markets.

Brushing aside accusations of being stubborn and passive and listening to nobody, the Ivory Tower might start looking into the revision of the country's forex policy. Thailand badly needs swift, timely and proactive economic and, specifically, financial management. The lessons learned in 1997 are too expensive for all of us to have to pay for them again. As a fan of Peter, Paul and Mary, I would like to say that the answer is not "Blowing In the Wind" - but at the Ivory Tower(s).

Satian Tantanasarit is TMB Bank executive vice president

The Nation