Tarisa Watanagase, the former Bank of Thailand governor, yesterday warned Virabongsa Ramangura, the chairman of the central bank's board of directors, not to cause confusion by making conflicting comments on monetary policy.
She said such statements could be interpreted as efforts by the government to intervene in the functioning of the central bank.
During an interview with the Nation Group, she said: “We have a new chairman of the board of the Bank of Thailand who also has a high position politically. He may be confused because of his changing role. The role of the chairman of the central bank is to support the organisation and enable it to execute policy.”
Tarisa did not mention Virabongsa by name. She only referred to “the chairman of the board” throughout the interview.
Virabongsa, who was elected chairman of the central bank under the current government of Prime Minister Yingluck Shinawatra, has been known to believe in a school of economics different from that of Tarisa and current BOT Governor Prasarn Trairatvorakul. Virabongsa has said on many occasions that he wanted to see the baht depreciate and a lower interest rate to boost economic growth.
Tarisa said it was natural for people to have different opinions about monetary-policy implementation. But if the chairman did not agree with the Monetary Policy Committee (MPC), which decides the key interest rate, he should have brought the issue for discussion with BOT officials internally or invited outside experts to give their opinions to form the policy. “It was a desirable protocol procedure,” she noted.
She added that when he made comments to the public without thorough discussion with top central bank people first, “it was difficult to tell what hat he was wearing – whether he was speaking in his capacity as chairman of the central bank’s board or not. But looking at the content, I think he was speaking from the government’s perspective.”
Tarisa, who is now an adviser at the Asia-Pacific Department of the International Monetary Fund
(IMF), said the conflicting comments by the chairman could be damaging because they could affect the credibility of the central bank. The private sector would be confused on how they should prepare for changing policy rates.
The international rating agencies have started to question whether the BOT’s level of independence has been decreasing, she added.
Virabongsa, also chairman of the government’s Strategic Committee for Reconstruction and Future Develop-ment (SCRF), has also voiced disagreement with “inflation targeting”, which the MPC uses to guide its decisions on interest rates.
Tarisa said: “I think the flexible inflation targeting is working well to create comfort among the public that the central bank is ensuring stability.”
Tarisa said the central bank had not “blindly defended the baht” regardless of the cost. In fact, in late 2008 when the Lehman Brothers crisis started, the BOT under her governorship decided to cut the policy rate by 1 percentage point. “It showed that we did not only look at the inflation rate.”
She added that the low policy rate has not proved to be an effective tool to draw investment into the country. She used as examples the cases of South Korea and Malaysia, which have the same policy rate of 3 per cent as Thailand. Korea has been able to attract more investment, while that has not been the case with Malaysia. She said this shows there are other factors affecting investment inflow, such as confidence in the economy. A good example is the 1997 financial crisis when the Thai policy rate shot up to 21 per cent, but capital did not flow into the country. This was because investors were not confident in the Thai economy.
She added that contrary to the notion that the central bank should have abandoned its traditional role of guarding against instability, a series of financial woes in Western countries have proved that a prudent policy is more relevant than ever.
Tarisa said weakening the exchange rate was not an effective tool to boost exports. Other countries are facing the problem of weakening global demand, not a strong exchange rate. She added that she did not see competitive devaluation in any countries in the region either.
Instead of pressing for weakening the baht, the government should instead focus on domestic investment and moving up Thailand from the middle-income level by promoting research and development. Thai rice production per rai is low. If the government invests in the areas to boost Thai production in sustainable manner, “everyone will praise it”, she added.