Thursday, May 9, 2013

PM's interference won't end Finance-BoT conflict

Bank of Thailand chairman Virabongsa Ramangkura has urged Premier Yingluck Shinawatra to intervene in the currency dispute between the central bank and finance ministry.

But is this an issue that can be resolved through political “mediation?”

In fact, I am not sure that Dr Virabongsa was serious in making that suggestion. In fact, it was more like an afterthought during a surprise press conference he called last Thursday. It was clear that his intention to hold the public session was to dramatise the “failure” of the central bank in curbing the rise of the baht value.

Virabongsa made no secret of his fear that that if nothing was done to solve the problem, the country could “sink to its demise or the economic could go into bankruptcy.”

But he devoted a great amount of time to discussing how difficult it was to dismiss Dr Prasarn Trairatvorakul from the post as central governor.

In fact, earlier reports said the premier, in a meeting of her kitchen cabinet earlier last week, had posed the question of how the central governor could be legally replaced. Her office has yet to issue a denial to that story.

Finance Minister Kittirat na Ranong has gone on public saying he was “thinking about replacing the central governor every day.”

There is little doubt that the government is very unhappy with Prasarn for not being “obedient” enough in a number of controversial policy issues, the latest being the repeated suggestion by Viragongsa and Kittirat to reduce interest rate to curb the strengthening of the baht.

Prasarn has argued, both publicly and in official documents to the government, that bringing down the interest rates wouldn’t solve the problem. But then under the law, decisions of interest rates doesn’t rest with the governor. The Monetary Policy Committee is in the official organ to review interest rates on a regular basis. The central bank governor is only a member of the committee although the finance minister appears to believe that the governor could influence most, if not all, of the MPC members.

Can the central governor be sacked? Under the law, he can be removed from office by the Cabinet on the recommendation of the finance minister – not for defying political wishes or orders – but for “serious wrong misconduct or dishonest performance.”

The BoT says the MPC is in charge of interest rates. The finance minister holds the BoT responsible for the strong baht. Virabongsa, as BoT’s board chairman, insists that he doesn’t really want to see Prasarn dismissed. Perhaps, he has read all the clauses in the law and come to the conclusion that sacking Prasarn for disagreeing with the government would make things worse.

Does he really think that the premier’s direct intervention would resolve the conflict between the central bank and the finance ministry?

This isn’t an issue between two politicians fighting over their respective interests over which the prime minister has total control. This is in fact a normal and in fact healthy divergence of views over whether interest rates are related to the strengthening of the currency – and what policy options are the most appropriate. It’s not about sharing the cake. It’s about academic analysis and pragmatic experience. It’s about mutual respect between politicians and technocrats.

It’s not about threats of dismissal or “you-scratch-my-back-I-scratch yours” compromises. It’s about mature, responsible people putting all the arguments for all sides on the table and, realizing there are no panaceas, deciding on the most practical monetary tools while closely monitoring to check on the outcomes.

Political intervention will only raise more questions and answers. Restoring mutual respect and professionalism between the finance ministry and central bank as well as the MPC is the only path to a real solution.

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