Is the Kingdom ready for a sovereign wealth fund?

 I figure that if Thailand is to continue to grow and prosper in a sustainable manner, it needs to be good at not only international trade but also international investment.

I became aware of this sovereign wealth fund concept three years ago when I had the chance to talk to people from the Government Investment Corp and Temasek of Singapore as well as the Abu Dhabi Investment Authority of the United Arab Emirates.

I became very interested in how these national funds behave and the benefits that they brought to their countries.

Thailand holds about US$109 billion (Bt3.42 trillion) in foreign-currency reserves, up 31 per cent from last year. Total reserves now stand at 40 per cent of gross domestic product, which is well above many industrial countries.

At this level, foreign reserves are already high and show a trend of continued increases in the future as Thailand continues to pile up forward contract obligations to buy foreign currencies, which now reach $21.7 billion.

The increases in foreign reserves have stemmed from massive foreign-exchange intervention, trade surpluses and capital inflows during the past couple years. Since the end of 2005, the baht has appreciated more than 25 per cent against the US dollar. Managing foreign reserves, a big chunk of which is in sinking US dollars, is a mammoth challenge for the country.

Trying to maintain the country's wealth is indeed a very difficult task. What I am trying to do is turn the threats into opportunities. To succeed we need to change the traditional mindset of passive investment into one that is more proactive towards strategic investment.

In many countries, they solve the problem of excessive foreign reserves and make more efficient use of them by setting up a sovereign wealth fund (SWF) to manage this money.

Notable countries that have been successful include Norway, Singapore, China, South Korea, Kuwait, the United Arab Emirates, Malaysia and Brunei.

The rationale and motivation is clear and well supported, so what do we do next?

We plan to organise the first-ever sovereign wealth fund conference in Thailand on May 15 entitled "Sovereign Wealth Funds: International Experiences and Options for Thailand".

The conference agenda includes, in the morning, an overview of SWFs today, experiences in establishing SWFs, structure, model and how to set one up, and an appropriate framework for establishing an SWF in Thailand.

In the afternoon session, discussions will cover topics such as governance of and proposed code of conduct for SWFs, approach and investment strategy of SWFs, external fund managers, selecting and benchmarking considerations, and lastly, investing in private equity.

The purpose of the conference is to educate the public about SWFs.

The conference should be attended by government officials, central bankers, thought leaders, academicians and representatives from financial institutions, government pension funds and asset-management companies. The speakers will be experts in this field from China, South Korea and Abu Dhabi, as well as from HSBC.

Chodechai Suwanaporn is the director of the Fiscal Policy Office's financial system section. The views expressed here are the author's own. He can be reached at fsa@fpo.go.th