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The Bank of Thailand should loosen its iron grip on the country's international reserves, much of which are sitting idle, by recycling US$30 billion (Bt1 trillion) because the economy is tanking, a noted economist said yesterday.

"We need to use the public's money to stimulate the economy because the government's revenue is crumbling," Narongchai Arkasanee said.

 The central bank should spend a portion of its international reserves worth about $120 billion to prop up the sagging economy, he told a seminar in Bangkok on how to tackle the economic downturn.

He joined a chorus of economics lecturers from Thammasat University, who have urged the central bank to use the foreign reserves to help support investment projects and reduce the debt burden of the government.

While the central bank is doing nothing, the baht could strengthen to 33 to the US dollar, which would strangle Thai exports, he said.

Tapping the sovereign store of hard currencies to stimulate the economy has been a touchy issue in this country, but Narongchai's rationale for a change is that the government is facing a crisis in its finances while the economy is slipping further into recession.

Of the Bt1.7 trillion circulating in the financial system, about half is the cash flow and spending of businesses and the other half is parked in short-term government treasuries.

Narongchai said at least Bt820 billion from this money supply could be drawn for reinvestment into the economy.

As of April in the fiscal year beginning last October, the government managed to collect only Bt655 billion, while its expenditure obligations hit Bt1.1 trillion, leaving a gaping deficit of Bt455 billion.

The central bank should join forces with the government by using its excess liquidity to help invest in various projects to revive the economy, Narongchai said.

The Bank of Thailand has printed money worth Bt894.5 billion, but it still has Bt878.2 billion languishing in its special account.

"At least the central bank can use $20 to $30 billion from this special account to invest in the various projects that require foreign exchange. These projects will yield returns that can be used to pay back later on," he said.

Article 35 of the Bank of Thailand Act allows the central bank's court of governors to identify the assets that the central bank can invest in with its international reserves, he said.

However, central bank governor Tarisa Watanagase is likely to oppose any move to  use the reserves. When Prime Minister Abhisit Vejjajiva and Finance Minister Korn Chatikavanij visited the BOT soon after assuming office, Tarisa stood firm against their pressure for the central bank to use some of the reserves to help shore up the economy.

Abhisit and Korn backed off and instead turned to working on two huge borrowing packages worth a combined Bt800 billion, which both passed through the House of Representatives this week.

The borrowing packages could raise the country's risk profile by sending it deeper into debt.