Thai central bank loses bid for more freedom

An initiative to give the Bank of Thailand more independence is dead and it has agreed to operate under government supervision, Finance Minister Chalongphob Sussangkarn said on Tuesday. "The ministry and the central bank have agreed it should come under the administrative branch," he told reporters.
"We have discussed the BoT governor issue for quite a while. The current system has operated for several decades and it has worked pretty well. We need not try something new, something that we still don't know its good and bad points," Chalongphob said.
His statement came a day after central bank Governor Tarisa Watanagase conceded she would not resist Chalongphob's decision to retain the power to hire or fire the central bank chief.
Chalongphob's decision killed an effort by his predecessor and former central bank governor Pridiyathorn Devakula to break with a long tradition of the government having a say in monetary policy run by the central bank.
"This does not reflect well on central bank independence. The policy missteps by the central bank, however, have tilted the power in favour of the finance minister," analyst Vishnu Varathan of Forecast Pte in Singapore said in a research note.
"The medium-term implication is negative as a central bank governor beholden to the Finance Minister has little independence to show," he said. The BoT came under strong criticism in financial markets in December when it imposed tough capital controls to rein in the rising baht, then exempted stock investments a day later after they provoked the biggest single-day market fall in its history.
Pridiyathorn, who had crossed swords with then Prime Minister Thaksin Shinawatra on bank policies as BoT governor, had advocated a more independent central bank able to conduct monetary policy without political interference.
Before his abrupt resignation over policy disputes two months ago, Pridiyathorn won preliminary cabinet approval to hand the government's power to choose and sack BoT governors to a committee to be appointed by parliament.
His predecessor, Chatu Mongkol Sonokal, was fired by Thaksin, ousted in a bloodless coup last September, in 2001 in a disagreement over interest rate policy. Since his appointment in March, Chalongphob has stressed repeatedly that there is room for the central bank to cut rates faster to spur economic growth.
Although the BoT has cut rates three times this year, it has been relatively cautious on the speed of monetary easing. Most analysts expect the bank to cut rates further by another 50 basis points at its next policy meeting on May 23 as annual inflation has eased fast in the past year, to 1.8 percent in April from 6.2 percent in May 2006.
Pridiyathorn also sought to limit a governor to a maximum two five-year terms instead of the current open-ended tenure until reaching the mandatory retirement age of 60. Chalongphob said he agreed the governor should have a fixed term in the future, but did not elaborate.