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October 9, 2008
Global Financial Crisis Impact:
Thailand maintains rate on growth concern, political turmoil

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November 20, 2008

Concern over Thai central bank’s independence arises again
Comments from Thailand's finance minister that he would appoint a panel to nominate a board of directors for the Bank of Thailand is likely to renew concerns about the central bank's independence, Reuters quoted analysts as saying Thursday.

The remarks from Finance Minister Suchart Thada-Thamrongvech late on Tuesday come four months after the government named a new Bank of Thailand board that failed to receive royal assent.

Suchart said he would appoint a panel of advisers charged with nominating a new chairman and board of directors for the central bank.

"I am in the process of forming a selecting panel for a new BoT board," he told reporters, without giving details.

Somphob Manarangsan, an economist at Bangkok's Chulalongkorn University, said the move is likely to raise concerns again about the independence of the central bank.

"A setback like this affects Thailand's image, especially its standards of good governance. Any renewed nominations must take into account whether they would be acceptable to the public or the markets," he told Reuters.

The government had the right to nominate people supporting its policy but it had to be aware of wider issues such as meeting public expectations and nominating candidates with clean backgrounds, said Varakorn Samakoses, economics professor at Bangkok's Dhurakij Pundit University.

"This is particularly essential because the new board would have the power to dismiss the governor."

Suchart announced his decision after Pornchai Nuchsuwana quietly withdrew his candidacy as chairman of the new central bank board, which had been announced by the cabinet in late July.

Pornchai, a former adviser to exiled prime minister Thaksin Shinawatra who was ousted in a 2006 coup, could not take up the post because his appointment failed to win final approval from King Bhumibol Adulyadej, as is constitutionally required.

No explanation has been given for the king's failure to sign off on the appointment.

At the end of July the government nominated to the central bank board people considered to be pro-growth, or in the case of the national police chief and top public prosecutor, lacking in obvious credentials.

This led to worries that the board would appoint a new rate-setting Monetary Policy Committee that would be reluctant to raise rates to fight inflation. It also fuelled doubts about the future of BoT Governor Tarisa Watanagase since the new board would also have the authority to sack her.

However, in August, Tarisa's prospects to stay in her job until mandatory retirement next October received a major boost when the king publicly praised her fiscal rectitude and focus on monetary stability.

His stunning gesture of support came amid government pressure on Tarisa to cut interest rates, rather than raise them to curb oil-fuelled inflation.

Since then, inflation has subsided and analysts now expect the BoT to start cutting rates from December in response to the threat of looming global recession.

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