Like S. Korea, Thailand cites power to debase its currency

Thai Official Explains Capital Controls

By Rungrawee C. Pinyorat
Associated Press
Sunday December 24, 2006

http://biz.yahoo.com/ap/061224/thailand_embattled_minister.html?.v=2

BANGKOK, Thailand -- Thailand's Finance Minister Pridiyathorn Devakula has called for China to allow its currency to rise against the dollar and has defended foreign currency controls he said were imposed to save the country's export-dependent economy.

"If currencies of our (export) competitors appreciate more or less at the same level as ours, I don't think we would need this measure any more," Pridiyathorn told The Associated Press.

"It would help a lot" if China revalued the yuan," he said, "but it would depend on the degree of revaluation."

Pridiyathorn, the former central bank governor and U.S.-trained economist, said he watched with alarm as foreign investors poured three times more cash into the country in the first week of December than in a typical week in November, sending the baht to a nine-year high against the U.S. dollar.

"A small nation like ourselves -- if we don't protect ourselves, who else will protect us?" he said.

With exporters complaining about the strengthening baht, he said, something had to be done to rein in speculators who were behind the surge and protect the economy.

"We have to save our country. We have to save one of the growth engines, which is exports," he said.

While the measures imposed Monday inflicted pain on investors, failing to stem the baht's rise would have had even worse negative long-term consequences for economic growth and the stock market, he said.

"If we didn't do anything, the stock exchange would have plunged further and the catastrophe would have been more severe," he said.

Still, Pridiyathorn -- who until now has courted little controversy -- and the Thai central bank have faced a barrage of criticism from investors inside and outside the country who endured a wild financial ride since the controls were announced Monday night.

Thai shares plunged nearly 15 percent Tuesday -- rattling regional bourses -- but then bounced back 11 percent Wednesday after authorities rescinded the curbs on foreign stock investing while retaining them on bonds and other debt instruments. The market flattened out the rest of the week.

The baht, meanwhile, weakened more than 3 percent over the course of the week since hitting a nine-year high Monday of 35.09 per U.S. dollar. Pridiayathorn pronounced himself satisfied Friday that the measures had achieved their desired effect on the currency.

No financial greenhorn, Pridiyathorn is one of the most respected members of the interim Cabinet appointed by the military after the September military coup that ousted elected Prime Minister Thaksin Shinawatra.

After getting an MBA from Wharton School of Business at the University of Pennsylvania, he spent the next three decades in the country's commercial banking sector, including the Thai Farmer Bank and Export-Import Bank of Thailand, before becoming the country's central bank chief in 2001.

But this week's events -- particularly the policy flip-flop -- have tarnished Pridiyathorn's reputation a bit.

"The measures were too strong and beyond the comprehension of investors," said Teerana Bhongmakapat, an economist of Bangkok's Chulalongkorn University. "It shows that the policy was made without thorough consideration. Foreign investors may think the authorities in this country will just do whatever they want."

Thitinan Pongsudhirak, political scientist at Chulalongkorn University, said he expected strong pressure on the government to change its finance minister.

"The mistake has seriously undermined the government's credibility," he said. "The pressure will keep increasing and Pridiyathorn will be a liability that continues to undermine the government's credibility."

But for now that appears unlikely with markets stabilizing and Prime Minister Surayud Chulanont on Thursday expressing full support for his economic team, including Bank of Thailand Gov. Tarisa Watanagase.

Pridiayathorn also said during the interview that the capital curbs were temporary but gave no timeframe for when they would all be lifted.

"This is a short-term measure. It's not supposed to stay for life," he said. "Once we get rid of the measure, the problem will be over, and I think the whole world will understand us."

But pointing out that Thailand has $63 billion in foreign currency reserves, he said the central bank could continue to intervene in the currency market to buy dollars to help weaken the baht.

For his part, Pridiyathorn appears unruffled by all the controversy and said that time would show that authorities had acted wisely.

"Credibility and integrity is the thing that you should observe. Not just one move," he said. "We're doing the right thing."

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