Bank of Thailand: Worst is over but no recovery visible yet
The Nation: 22 Jun 2009
EXCLUSIVE INTERVIEW
'Worst over for economy but recovery not visible'
By Chamnan Noisamran The Nation June 22, 2009
BOT chief Tarisa says she is opposed to using foreign-exchange reserves to stimulate growth
The economy has seen through the worst but a recovery has not yet come to pass, the Bank of Thailand governor said.
In a special interview, Tarisa Watanagase said, "The Thai economy has bottomed out but signs of an economic recovery are not apparent yet. This broad outlook is a result of our discussion with the private sector. We still need to take a look at the July figures first."
Still, Tarisa said the global economic conditions have begun to improve, compared with the turmoil in late 2008. Interest-rate spreads have started to return to normal because deep-seated problems in the US financial system have been tackled to a certain level following a recapitalisation of five to six financial institutions.
In Asia, Tarisa added, the situation is also getting better, with China mounting a massive fiscal stimulus package to address its unemployment. Exports of Asian countries are still in negative territory, but the conditions are beginning to stabilise, particularly for Thai exports. The electronics sector, for instance, has begun to hire again.
Recently, Dr Narongchai Arkasanee, a well-known economist, and other academics, called on the central bank to use US$200 million (Bt6.82 billion) to $300 million of its international reserves of $120 billion to help stimulate the sagging economy as the government is cash-strapped.
Tarisa vigorously defended the central bank's international reserves management, saying that in economic theory it is not an appropriate policy to use international reserves to prop up the economy.
"We have already talked it out with the prime minister and the finance minister that using international reserves to stimulate the economy is not a good option.
Apart from the US dollar, there are other currencies in the reserves. If we sell the dollar from the reserves, the value of the baht will jump, which would complicate the problems. And if the Bank of Thailand were to push out the baht by converting the US dollar in its own account, this would also amount to printing money," Tarisa said.
"No country in the world is spending money from its international reserves directly. If we were to use the reserves to buy up some oil reserves, then this matter can be put to rest because it would not affect the domestic economy."
With the staunch stand of the central bank against using the foreign exchange reserves, the Abhisit government has no other choice but to raise Bt800 billion via two bills from the financial markets to fill up the hole in its budget and to also stimulate the economy.
The House of Representatives has passed the Bt400-billion borrowing package introduced as an executive decree, and the Senate would deliberate this bill today. The other Bt400 billion borrowing package has also been passed by the House of Representatives, but it would be deliberated by the Senate probably in August.
Tarisa said the amount of US$120 billion in international reserves is actually not high because it is derived from export earnings, from foreign investors' portfolio investment in the stock market and from foreign borrowings of Thai firms and from foreign direct investment.
As for calls for the central bank to keep the baht weaker to boost exports, Tarisa said the central bank is managing the baht through a nominal effective exchange-rate system by weighing the Thai currencies with those of other trading partners, not only the US dollar.
In January, the baht stood at Bt34.92 to the US dollar, compared to Bt34.57 in May this year. This, Tarisa said, represents the baht's appreciation of only 1 per cent during the first five months of this year based on the nominal effective exchange rate mechanism.
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