Surapong cool to fund plan

Speaking at the seminar entitled "Sovereign Wealth Fund: International Experiences and Options for Thailand" hosted by the Fiscal Policy Office, Surapong said Thailand needed to conduct a study on whether it is appropriate to set up such a fund.

The sovereign wealth fund (SWF) is new to Thailand and few people understand it, he said.

Surapong later said although the country has accumulated a large amount of foreign reserves, this was the product of an economy that is in imbalance.

"Lack of investment over several years has resulted in large current-account surplus and large foreign reserves, so we still feel uncomfortable about it," said Surapong.

He said the government wanted to wait until the economy returned to a balanced state and there was a return of investment. Then if reserves remain large, the country may be ready to establish an SWF.

He also said the country would also need to monitor whether the foreign SWFs who invest in Thailand could cause financial instability in the future. He added that SWFs from other countries had not yet invested much in the KIngdom.

Surapong's overall view is, however, contradicted by proponents of the creation of a fund.

Fiscal Policy Research Institute director Kanit Sangsubhan argued that the Bank of Thailand could set aside part of the reserves in a range between $10 billion and $20 billion for long-term investment purposes under the SWF vehicle.

Long-term investment would yield higher returns than the short-term investment currently managed by the central bank, he said.

Charles L Hanbury-Williams, global sector head of HSBC, shared Kanit's view, saying that the current level of foreign reserves was too high and the central bank has to shoulder the cost for carrying such large reserves.

He suggested that Thailand and other emerging economies should create SWFs and separate them from their central bank's reserve management, to be run by professionals.

Je Yeong Park, chief operating office of Korea Investment Corp, an SWF established in 2005, said that the South Korean finance ministry issued government bonds for the central bank to use as part of the foreign reserves for SWF purposes.

Securities and Exchange Commission secretary-general Thirachai Phuvanatnaranubala suggested the central bank should allow more private firms or individuals to invest abroad. He said host countries welcomed private investment but saw investments by SWFs as a threat due to fears of national security.