Arguments between two schools of thought on the use of monetary policy
to target growth or stability have become intense. However, some have floated
the idea of using a "mixed" policy as an alternative.
Thailand should not focus on
weakening the baht, as the strong currency reflects solid economic growth amid
forecasts of a further global slowdown in growth next year, according to the
chief of the United Nations Conference on Trade and Development (Unctad).
Speaking on "New Challenges
for Thailand in the New Era of Global Trade and Investment" in Bangkok
yesterday, Unctad secretary-general Supachai Panitchpakdi said the global
economy is expected to see another slowdown next year, with an expansion of
only 2.5 per cent.
He said that this year, the
economy will not grow as forecast by the International Monetary Fund. Global
trading will face slower growth to only 4 per cent from 5-per-cent expansion in
2011.
"The US economy and the
euro-zone crisis will get worse. Hence, Thailand and Asian countries should
strengthen cooperation through Asean+3 [China, Japan and South Korea] and Asean
integration, as the region is a key global economic driving zone, accounting
for more than 50 per cent of the world's trading," said Supachai.
Although policy-makers have a
right to criticise the Bank of Thailand, the government should allow the
central bank to work independently and discharge its responsibilities, he said.
He said the central bank has its
own agenda to administrate the financial system and there should not be any
political intervention.
His comments came after
Virabongsa Ramangkura, the newly appointed chairman of the central bank's board
and a former finance minister, called for a change in monetary policy with a
view to boosting economic growth.
Supachai said that inflation and
the exchange rate could be managed alongside one another. The central bank has
a duty to manage inflation for which it should balance the weighting of goods
prices, and spending. So far, inflation is under control and the policy
interest rate is also suitable for the economy. The government should continue
policies to facilitate economic growth.
In addition, Supachai expressed
concern about populist policies, which he feared could create problems for the
government's income in the future.
"Although Thailand has not
yet faced a high debt problem, the country will continue to lose income due to
many government measures to reduce taxes. The government should start to worry
about how to increase revenue in order to ensure liabilities did not exceed
revenue, otherwise Thailand could become like Greece," he warned.
Supachai added that the
government would need to reduce the income gap and restructure the taxation
system such as by increasing the assets tax.
The government should also be
careful about the pledging policy, as it has spent a huge amount from its
budget, which is collected from the citizens. To promote sustainable
development of the farming sector, it should focus on production development
rather than price targeting.
Bank of Thailand Governor Prasarn
Trairatvorakul said yesterday that a meeting on Thursday between the BOT's
board members and Monetary Policy Committee saw an exchange of ideas on
inflation targeting. The meeting also discussed the assessment results of
experts, including an IMF letter that said Thailand's use of this tool is
effective. There is a clear process and we're able to communicate with the
public clearly, he said.
After discussions with BOT board
chairman Virabongsa at the Thursday meeting, it was unclear whether he wished
to use the exchange rate to take care of inflation, as he participated in the
meeting for only an hour because of other commitments, said Prasarn.
"Using the exchange rate as
a tool might have some risks. Thailand used that policy to counter the
financial crisis in 1997. The BOT targeted the exchange rate and its efforts to
protect the rate led to a huge drain of international reserves," he said.
He added that the BOT has not
taken care only of inflation, although it calls it "inflation
targeting". The BOT would also oversee economic growth and the monetary
tools it used include the exchange rate.
Former finance minister Thirachai
Phuvanatnaranubala said the IMF's letter to the BOT cited inflation targeting
as suitable to Thailand. He told Krungthep Turakij TV's "Morning
News" programme that the government's focus on populist policy and
bringing the policy interest rate down could be difficult.
In his view, if the BOT lacked
independence, foreign investors would lose confidence. He also said he agreed
with the BOT's use of inflation targeting as a monetary policy. However, he
believes there should be a mixed use of monetary policy.
Supavud Saichuea, managing
director of Phatra Securities, said monetary policy could control inflation,
depending on whether interest or exchange rates were used as tools to control
inflation to be in line with the economic situation of each country.
Exports account for 72 per cent
of Thailand's GDP, while imports are 70 per cent. Hence this should be taken
into account while using whichever monetary tool is most appropriate to control
inflation. If the country targets export growth at 15 per cent per annum
continuously, its export growth in the future might reach 100 per cent.
Petchanet Pratruangkrai
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