IHT : Thai official calls for global action on the dollar
Uncle Yap
Published: December 20, 2006
Thai official calls for global action on the dollar
Central banker asks global regulators to help stop decline
By Thomas Fuller and Wayne Arnold
BANGKOK: The steep decline of the dollar is punishing Asia's smaller
economies and should be addressed by global financial regulators, the
governor of the Thai central bank, Tarisa Watanagase, said Wednesday.
Speaking as the Thai stock market rebounded from a record one-day drop
of 15 percent, Tarisa defended the government's attempt to block
short-term foreign investment.
Dismissing criticism that the move had tarnished Thailand's reputation
among international investors, she instead portrayed Thailand as a
victim of the large imbalances in trade and savings that send
trillions of dollars sloshing in and out of developing countries.
"This is not a problem unique to Thailand," Tarisa said during an
interview. "I'm sure that if this sort of problem is not cured in a
cooperative manner, we could see similar measures elsewhere."
By imposing capital controls on Monday, Thailand sought to slow
inflows of foreign money because it had resulted in a double-digit
appreciation of its currency against the dollar since the start of the
year. Tarisa urged the International Monetary Fund or the Asian
Development Bank to find a solution to the problem. Otherwise, she
said, "The smaller, open economies will have to take the issue into
their own hands."
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Tarisa and other top Thai finance officials have come under strong
criticism here after the sharp drop in the market was followed by the
reversal on the capital controls.
Analysts also criticized a lack of coordination among officials here
and a blurring of the lines between the supposedly independent central
bank and the Finance Ministry. Tarisa was traveling and unavailable
for comment as the stock market plunged Tuesday.
"With something like this, the central bank governor has to step up
forcefully and calm the markets," said Thitinan Pongsudhirak, a
professor of political science at Chulalongkorn University in Bangkok.
"She was on holiday."
Bank of Thailand officials said Tuesday that she was in meetings. A
press officer at the central bank said Tarisa was in the northern city
of Chiang Mai but declined to describe what she was doing there. In
the end, it was the finance minister, Pridiyathorn Devakula, not
Tarisa, who announced that the capital controls would be rolled back.
Thirachai Phuvanatnaranubala, the secretary general of the Thai
Securities and Exchange Commission, said he had not been told about
the capital controls.
"The central bank relied mainly on their academic research to come up
with the baht control measure without consulting with us," Thirachai
told a business radio station, according to Bloomberg News.
Tarisa said the biggest failing was a lack of communication with
investors when the new rules were announced Monday. "There was not
enough communication in English in terms of the details of the
regulation," she said. "That was the major problem."
The bank had been battling to contain a surge of short-term
investments into the baht, she said, particularly into the country's
market for corporate bonds and commercial paper. On Dec. 4, the bank
issued restrictions on foreign investment in the bond market, but the
measures failed to have any impact.
The bank then decided to issue blanket measures on all foreign
investment, Tarisa said, because of the difficulty of determining the
purpose of inflows. It gave investors only one day of warning to
prevent them from selling in anticipation of the new rules.
But the response in the market was more than the bank had anticipated,
Tarisa said. "Investors overreacted well beyond our expectations," she
said.
The rules required investors to set aside 30 percent of any new
investment in an interest-free reserve account for one year,
calculating the opportunity cost of doing so at about 1.5 percent.
With investors in Thailand earning roughly 20 percent a year, Tarisa
said, "we did not see that as a major factor to scare the long-term
investors."
"We know very well that we cannot go against the market," she said.
*************From Uncle Yap**************
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