July 30, 2012 00:00
By Wichit Chaitrong
Forex holdings not there to turn a profit, ex-chairman says
The former chairman of the Bank of Thailand last week sharply criticised the current chairman and the government for its attempt to exploit the country’s international reserves and for its lack of fiscal discipline.
“Reserves are reserves. Its name tells us what it is. Don’t try to make profits from reserves,” MR Chatu Mongol Sonakul said.
The baht also would depreciate due to the government’s lavish spending plans, he said.
Finance Minister Kittiratt Na-Ranong and central bank chair-|man Virabongsa Ramangkura are believed by many observers to have deliberately tried to make use of |foreign-exchange reserves worth US$$170 billion (Bt5.4 trillion) held at the central bank.
Kittiratt often insists that the government has the duty to reallocate the country’s resources to manage the economy efficiently.
The government plans to invest Bt350 billion in flood prevention and Bt2 trillion over seven years in infrastructure. But central bank governor Prasarn Trairatvorakul is concerned about the lack of fiscal discipline on the government’s part.
The central bank also argues that foreign reserves are not large compared to foreign investors’ claims on Thai assets.
Kittiratt was believed to be behind the nomination of Virabongsa as chairman while the Bank of Thailand had nominated Chatu Mongol.
After assuming the post in June, Virabongsa asked the central bank to address the issue of its loss of about Bt400 billion.
“Why try to solve what’s not the issue?” Chatu Mongol asked.
Many governments leave the central bank’s bottom line in the red.
There is no problem with the credibility of central banks in paying back debts because they can create money.
“Moreover, in the case of Thailand, large international reserves ensure that we have money to repay debts,” he said.
The government and Virabongsa want the central bank to float interest rates, but aggressively intervene in the forex market to make the baht weak.
He said he supported the weak baht policy to help the export sector, which is expected to contribute greatly to economic growth.
“But when I was a chairman I couldn’t convince the central bank’s Monetary Policy Committee,” he said.
He was referring to the central bank’s typical argument that the baht is not stronger than competitors’ currencies and the economic growth of trade partners is more important for Thai exports than a weaker baht.
Now the baht has sunk to about Bt31 per dollar from the recent Bt30 level due to global investors holding safe haven assets – dollars and US government bonds. And as Thailand’s exports drop from the global crisis while its imports surge, leading to balance-of-payment deficits, the baht would weaken.
“Now the baht is weak so there’s no problem of a stronger baht and the trend is expected to continue because the government plans to spend lots of money,” he said.
He does not agree with the government’s plan to use the fees collected from state-run banks to fund new government projects.
“The fees should be used to repay existing liabilities, not to finance new projects,” he added.