Thirachai wants BOT to reconsider inflation policy

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BANK OF THAILAND

Thirachai wants BOT to reconsider inflation policy
By Wichit Chaitrong
The Nation 2011-08-16

Finance Minister Thirachai Phuvanatnaranubala plans to hold discussions with Bank of Thailand Governor Prasarn Trairatvorakul on the the central bank's inflation-targeting policy in view of a pressing need to stimulate domestic demand to counter the global economic weakness.

Thirachai has sent out a signal that he disagrees with the central bank's ongoing move to rein in inflation through tightening of its monetary policy.

"The Fiscal Policy Office will be studying whether the inflation target of 0.5 to 3 per cent is appropriate amid slow economic growth in the advanced economies," he said.

The Bank of Thailand is now on course to normalising the interest rate structure. It is keeping its repurchase rate at 3.25 per cent, while inflation reached 4 per cent in June and 3.4 per cent in the first half of the year. The interest rate will have to be at least on par with the inflation rate.

However, on his first day in office, Thirachai said he would like to explore the impact of the central bank's effort to rein in inflation that could hurt the purchasing power of the people and the overall domestic demand.

He plans to hold discussions with the central bank after Prime Minister Yingluck Shinawatra delivers the policy address to Parliament on August 24. "The BOT's rate hike so far has served to rein in inflation, but it is hurting the purchasing power of people," he said.

Thirachai added that the Finance Ministry would also consult the BOT onr whether to further liberalise banking service by giving new licences to banks from Asean countries, or Asean+6 countries such as India, South Korea and China.

Securities firms, under further liberalisation, might also be allowed to trade currencies in order to increase competition in the financial markets.

Thirachai also touched on the sensitive political issue of whether the government would impose a tax on former prime minister Thaksin Shinawatra on the proceeds from the sale of Shin Corp shares to Temasek Holdings of Singapore in 2006.

Thirachai said he would follow the principle of tax justice and would be ready to collect tax from Thaksin if the law required him to pay tax.

"Regardless of who it is, whether his name is Thaksin or Thirachai, they all must be subject to the tax law," Thirachai said on the pending controversial tax issue related to Thaksin.

The Revenue Department has recently indicated that under the law it might not be able to collect tax on Thaksin's incomes from the sale of his Shin Corp shares to Temasek.

Thirachai assured that every taxpayer would be treated equally.

Thirachai will also discuss possible measures to reduce the central bank's operating losses, which would be a way to tackle the Financial Institutions Development Fund's long-standing debts. He said that higher interest rates would draw more capital inflows, which would require more dollar purchases, leading to higher losses at the central bank.

On the possibility of creating a Sovereign Wealth Fund, he said this issue would also be explored as many countries were now using their reserves to invest in tangible assets such as commodities.

In his policies announced yesterday, Thirachai said a joint public and private committee would be set up to monitor internal and external risks and come up with immediate remedies. The finance minister will chair the committee, which will also include members from the Federation of Thai Industries and the Thai Chamber of Commerce.

It was one of five policies that he announced yesterday on taking office. The others include tax policies promised by the Pheu Thai Party as well as coordination with the Bank of Thailand.

Thirachai vowed to uphold fiscal discipline while carrying out the election promises of ruling coalition parties, in particular tax restructuring that would be designed for greater efficiency and fairness. He will also seek discussions with other ministries to deal with large-sized investment projects, as prioritisation must be adapted to meet the changing development policy as well as investment environment.