Former governor warns against interference with Bank of Thailand

A former Bank of Thailand (BoT) governor has said government inference with the central bank could have disastrous consequences for the economy.

Tarisa Watanagase, who headed the bank between 2006 and 2010, also called on a panel tasked with picking a new chair of the BoT board to make their decision independently.

She made her comments yesterday (October 7) on Facebook as media reported that a committee would meet today to select the chair and two board members from a list of candidates put forward by the BoT and the finance ministry.

“Recently, it is expected that the government will send its people to be the chairman of the board of the Bank of Thailand, with the purpose of being able to use the BoT as a tool to implement government policies,” Tarisa said.

“If this happens, disaster will certainly follow for the Thai economy, just like what we have seen in other countries where the government has intervened in the central bank.”

Last month, Paetongtarn Shinawatra’s administration nominated former finance minister Kittiratt Na-Ranong for the post of chair, according to media reports. Kittiratt is a loyalist of the ruling Pheu Thai party and an outspoken critic of the BoT’s hawkish monetary policy.

Under current laws, the finance ministry gets to nominate one candidate for the chair and the central bank is allowed to nominate two. The seven-member selection committee, made up of retired senior civil servants at key economic agencies and appointed by the finance minister, then chooses one of the nominees to take up the position.

Over the past year, the BoT and two successive Pheu Thai-led administrations have been at loggerheads over monetary and fiscal policies. Kittiratt’s nomination raises concerns that the government is seeking to exert greater influence over the central bank.

The BoT’s board consists of the chair, the governor, three deputy governors, two government officials and five external experts appointed by the finance minister. The chair is not involved in setting monetary policy.

However, the board oversees the BoT’s business and operations. It also has the legal powers to evaluate the governor’s performance, and to nominate and select external members of the monetary policy committee.

Tarisa warned that overseas examples showed that political inference with a central bank could erode foreign countries’ confidence in the economy and diminish the institution’s role in maintaining long-term economic stability. She added that the economy would therefore be at risk of being damaged by policies that focused only on providing short-term stimulus.

“The Thai economic circle has pointed out the great damage of intervening in the Bank of Thailand, but the government does not want to listen to these warnings,” she said.

Tarisa said past selection committees had performed their duties independently and had not accepted interference. She said this was why the selected persons were suitable, understood the role of the central bank, could perform their duties appropriately and were accepted by society.

“I can only hope that the selection committee this time will be able to perform this important duty with the same principles,” she said. “No one wants to be recorded in history as one of the people who must be responsible for turning the Thai economy around to the first step of disaster.”

Over the past year, the Srettha Thavisin administration and the Paetongtarn Shinawatra administration – which came into office in August – have repeatedly urged the central bank to cut interest rates. The BoT, led by governor Sethaput Suthiwartnarueput, has resisted such calls.

The BoT has also raised concerns over the government’s $14 billion cash handout scheme – a key policy initially pushed forward by the Srettha administration and now inherited by Paetongtarn’s government.

Under the scheme, the government will give 45 million people handouts of 10,000 baht ($299) each to boost overall levels of spending. The central bank has said this could have a negative impact on the public finances and that the scheme should only target the needy.

Tarisa also said that the cash handout scheme would pose a “huge financial burden” and could lead to Thailand’s credit ratings being downgraded.

Despite several previous delays amid opposition to the handouts, the government has said it will roll out the scheme in phases. Last month, it began distributing handouts to around 14.5 million people.

Although the Srettha administration initially planned to distribute the handouts to people’s digital wallets, the current government has decided to transfer the money directly to the recipients’ bank accounts.