Suchat throws down the gauntlet in battle for BOT control

Tarisa must have clearly seen the writing on the wall when Prime Minister Samak Sundaravej appointed outspoken economist Virabongsa Ramangkura to serve as his chief economic adviser. Virabongsa has been attacking Tarisa all along over her management of monetary policy. He has pointed out that if he were to take political office, he would never be able to work with Tarisa.

Virabongsa contends that instead of raising interest rates, the Bank of Thailand should have cut the rates to spur economic growth. Yes, inflation is a problem, but it is a phenomenon of cost-push inflation arising from higher oil prices, which are affecting all countries equally. The central bank should have instead injected more liquidity to keep companies and employment afloat in this current economic environment. Investment, consumption and jobs are the three most important factors presently - not inflation.

Suchat, a former professor of economics at Ramkhamhaeng University, is advocating a similar line of thinking, almost like a chorus backup, with his assault on the central bank. He indicated that the central bank's policy rate, which is now at 3.5 per cent, should have been cut to 2 per cent in order to support the actual potential of Thailand's economic growth of 7 to 8 per cent.

He pointed out this huge gap in economic thinking between politics and the Bank of Thailand. "We need coherence in fiscal and monetary policy management like other countries. If the two bodies [the Finance Ministry and the Bank of Thailand] cannot reach a joint agreement [on the interest-rate policy], one party must be relieved of its duties," he said.

It is clear that Suchat was referring to the central bank, and definitely not the Finance Ministry, which derives its political mandate from the election.

Attempts to remove Tarisa from office have actually started when the Samak government came into office. The ruling party would like to have complete control over the financial markets and the financial system. Dr Surapong Suebwonglee, the deputy prime minister and finance minister, has Tarisa on the top of his list of targets for removal.

There followed rumours that Tarisa would be sacked to pave the way for Thirachai Bhuvanatnara-nubala, the secretary-general of the Securities and Exchange Commission (SEC). Thirachai has a good relationship with the People Power Party. If the Democrat Party had come to power, he would have been sacked on day one.

Somehow this game plan did not work. Removing the Bank of Thailand governor was not easy. Tarisa's mismanagement, alleged fraud or incompetence could not be established or quantified to justify her removal. The new Bank of Thailand Act, designed to protect the independence of the central bank, has also made it difficult to remove the governor. Thirachai has to be content with his reappointment as secretary-general of the SEC for another term.

Apart from expressing his strong opinions against Tarisa, Surapong has also tried to embarrass Tarisa further. He ordered the formation of a committee to investigate the Financial Institution Development Fund's participation in the capital increase of BankThai. This could serve as a ploy to sack her. Again, the BankThai factor has not proved to be a strong case to sack her.

Probably, the ruling party has exhausted its options to sack her, so it has sought help from Virabongsa, hoping that his stature would justify her eviction. The ultimate aim is to have control over the banking system, with several state-controlled banks at stake. We have to keep an eye on this looming battle for control of the Bank of Thailand, a battle that is not about interest rate policy alone.