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Finance Minister Suchart Thadathamrongvech yesterday suggested that Thailand should boost the economy by depreciating the value of the baht and delaying the new international standard, or "Basel II", in order to maintain the country's export competitiveness. Suchart's proposal came out of context. And it was unclear if he had conducted any proper study before blurting out such an idea. Such action is unlikely to help boost the economy. Instead, it would send the wrong signal to neighbouring countries over the policy direction of Thailand. Regarding the delay of Basel II, this might hit the credibility of Thai banks. Besides, commercial banks have confirmed that they are ready to move forward with Basel II and that this is the way to restore confidence.

Suchart said he would soon consult with Deputy Prime Minister Olarn Chaipravat about his ideas. He suggested that Bangkok depreciate the baht by 5 per cent. However, the depreciation proposal does not seem to make sense as the current economic doldrums are a result of the global recession, triggered by the financial meltdown of the US, the biggest export market for Thailand and many other countries.

A depreciation of the baht would not help solve the sluggish export situation because the current economic slowdown was more a result of the credit crunch and the fact that the financial systems in several developed economies are in desperate shape, increasing the possibility of global recession. Therefore, a depreciation of the baht is unlikely to solve the problem at its root cause. Instead, it would make others misunderstand Thailand's monetary policy and put pressure on them to also lower the value of their currencies to maintain their competitiveness against a prospective cheaper Thai baht.

Currency depreciation to boost the economy is an old-fashioned idea and it is not the right solution to fix the economy. Instead, the government should stimulate the economy by focusing on public investment to boost domestic demand. This would be good enough for the Thai economy to grow by 4 per cent amidst the current global economic downturn. Instead of undervaluing the baht, the government should try to ensure monetary stability to withstand the global financial crisis and accelerate fiscal spending to boost consumption.

By proposing this idea, Suchart might unintentionally have suggested that he would try to intervene in the Bank of Thailand's mission guarding the baht's stability. Thus, it was no surprise that the Bank of Thailand Governor Tarisa Wattanagase quickly came out to shoot down the idea by saying it would be a negative change to the country's monetary policy. To devalue the baht would distort the market. Besides, the level of currencies can go up and down quickly amid the current global turbulence. In addition, the baht has been moving along well with the regional currencies. Thai manufacturers and producers should aim to boost their exports by improving quality instead of cutting prices.

Suchart also dreams that if the baht depreciates by 10 per cent, it would boost export growth by 20 per cent. Unfortunately, the macro-economic management is not that easy.

Any finance minister who wants to manage the economy effectively through this crisis will have to thoroughly consider several factors before making any important economic decision. A knee-jerk reaction is the last thing we want to see from the top decision makers when the country's economy faces high economic risks from factors beyond domestic control.