Finance minister rejects criticism that letter he sent amounted to 'intervention'
Deputy Prime Minister and Finance Minister Kittiratt Na-Ranong has strongly defended the reason for the "intervention" letter sent to the Bank of Thailand, but insisted that he had no intention to dismiss the central bank governor on this ground.
In an interview with a group of reporters on Thursday evening, he said that the letter was sent because of his deep concern about the central bank's skyrocketing foreign exchange stabilisation cost. He felt the need to officially express his concern to the central bank's board of governors, as the BOT has so far failed to heed his advice, though the stabilisation cost has risen from Bt70 billion last year to more than Bt100 billion this year.
"The data saddens me. I have tried to speak to them, directly and indirectly, but there is no response. I would be more comfortable if the loss narrows down, but it is widening. I have to speak this out to the people involved, as I'm also legally bound to take responsibility for this, besides the people's expectations," he said.
In his letter, Kittiratt told the central bank that it should lower the policy rate to slow down inflows, which will reduce the baht stabilisation cost, the accounting loss for which accumulated to Bt530 billion last year.
Thailand's policy rate is 2.75 per cent, compared with a maximum of 0.25 per cent in the US and 0.1 per cent in Japan. The baht weakened yesterday to end the week at 29.78 per dollar, unchanged from a week ago, according to Bloomberg. It touched 29.66 on January 21 and January 31, the strongest level since August 2011. The BOT's Monetary Policy Committee, which oversees the policy rate, will meet on February 20.
Kittiratt has been heavily criticised for his action, considered by former finance minister Thirachai Phuvanatnaranubala as an "intervention" in the central bank's sovereignty.
Former finance minister Thanong Bidaya told Krungthep Turakij TV yesterday that the situation should not have heated up like this, given that BOT Governor Prasarn Trairatvorakul knows well how to handle the situation. Like Kittiratt, Thanong favoured a rate cut to slow down foreign capital inflows, but he said the cut should be gradual and in line with economic conditions. He said high inflows would boost liquidity, and more lending could also lead to bubbles. The flow movement may shift if the BOT just hints at a possible rate cut, similar to the way Japan succeeded in weakening the yen from 80 per dollar to 90 because of the new minister's promise to boost inflation. However, he said Prasarn should have known it well but may want to preserve the central bank's integrity in light of strong criticisms.
"It's the BOT's duty to stabilise the baht. When the inflows are huge, the baht should be allowed to appreciate. Indeed, the accounting loss of more than Bt500 billion is not worrisome based on the foreign reserves and the economic benefits [from stability]. We have to go with the flow and correct it later. Capital flows in and out," Thanong said.
In his letter to BOT chairman Virabongsa Ramangkura, Kittiratt had said that the stronger baht would hurt the export sector, and that Thailand's policy rate, higher than other countries, is a factor in drawing capital inflows.
In his interview, Kittiratt insisted that dismissing Prasarn is not on the cards. He had just sent the letter as under the Bank of Thailand Act BE2551, a finance minister has the right to express an opinion.
"The Cabinet has the legal right to dismiss the governor, but this requires the BOT's board of governors to make a start. My question now is whether the board has made such a proposal or if differing opinion on the policy rate could be the reason for the dismissal. Everyone should understand that wrong policies could lead to the dismissal of a finance minister. If the loss increases to Bt100 billion a year, that's Bt1 trillion in 10 years. I have to express this concern as people may ask in the future why I didn't show any concern while being the finance minister," the minister said.
The finance minister has come under fire for admitting to having urged the central bank in writing to reduce its policy interest rate.
The Senate committee on financial and monetary affairs has described Kittiratt's action as "inappropriate" in its letter sent to BOT chairman Virabongsa, according to a source from the panel.
"The finance minister's action may be regarded as intimidation, and not recommendation on policies," the source said.
According to the source, the senate panel was about to summon people involved to explain about this issue.
Pisit Leeahtam, another former finance minister, said the finance minister has the right to make a suggestion to the BOT on what to do regarding the policy interest rate. But the central bank also has the right to decide what to do because it has direct responsibility over this matter, he added.
Praipol Koomsup, a senior economics lecturer at Thammasat University and a former member of the Monetary Policy Committee, said it was unprecedented for a finance minister to suggest to the central bank's chairman in writing about any policy issue.
"[The central bank] is designed to have some degree of independence, free from any outside intervention - whether it is from politicians or businesses," he said, adding that Kittiratt's case was "rather unusual".
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Article source: http://www.thethailandlinks.com/2013/02/09/no-intention-to-fire-bot-governor-says-kittiratt/
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