Joint Govt. Measures to Try to Bring Baht Appreciation under Control

The following appears in THE NATION:

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BOT and Ministry Will Ride the Baht

The Bank of Thailand and the Finance Ministry will jointly manage the exchange rate through the market mechanism, following tomorrow's end to 14 months of hard-knuckled capital controls.

Published on March 2, 2008

Tarisa Watanagase, the central-bank governor, told Nation Channel yesterday that the new BOT Act would go into effect tomorrow and the Finance Ministry had a new public-debt management law to rein in the baht.

Both laws let the central bank and Finance Ministry issue an unlimited amount of bonds to manage the demand for and supply of foreign exchange as a means to stabilise the baht, which will likely shoot up after the 30-per-cent reserve requirement is lifted.

"Since we held an election and got a new government, the policy direction has become clearer. The Finance Ministry has also taken action to support the BOT in overseeing the baht via its public-debt management office," Tarisa said.

The government now has more powerful tools at its disposal to influence currency movements, while before conditions were not conducive to removing capital measures due to the lack of legal power to deal with volatility in the forex market.

The export sector has been the only engine of growth for the economy, so authorities needed to be cautious to avoid causing undesirable impacts, she said.

However, the economic outlook is now better and figures for imports and exports, government expenditures, investment and consumption for the last quarter of 2007 show that the time is now ripe to unbridle capital flows, she said.

Tarisa insisted that the central bank had not acted under pressure from politicians.

The Thailand Development Research Institute has forecast that the baht will appreciate by Bt1 per US dollar due to the unfreezing of reserves. Small exporters could be hit by the falling competitiveness of Thai goods in the world market.

Abhisit Vejjajiva, leader of the opposition Democrat Party, welcomed the central bank's move, while Korn Chatikavanij of the same party said the baht would continue its upward trend because of the US dollar's weakness.

Korn also warned the government not to attempt to fix the value of the baht because that was not possible under today's market conditions.

The government should instead manage the economy competently with sound policies so that it would help avoid imbalances, he said.

Overall, economic growth should be sustainable, he said, supported by sound policies for domestic public and private investment, consumption and export.

Afterwards, the exchange rate will reflect these economic conditions, he said.

The Nation