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Thai PM’s adviser puts central bank policy in doubts


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August 5, 2008

Thai PM’s adviser puts central bank policy in doubts
The appointment of a Bank of Thailand board member as one of the government’s five new economic advisers has apparently put in doubts the central bank’s independence on monetary policy, Reuters reported on Monday.

Days after appointing top government officials, including the national police chief, to sit on a new Bank of Thailand (BoT) board, Prime Minister Samak Sundaravej nominated one of them to his economic advisory team, raising concerns about interference in central bank interest rate policy.

Kanit Sangsubhan, head of the Finance Ministry-funded Fiscal Policy Research Institute think tank, was last week asked to sit on the new BoT board and on Sunday included in Samak’s new five-member economic advisers led by former Finance Minister Virabongsa Ramakura, who shares the government’s view on the need for low interest rates.

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Known as a favourite of former Prime Minister Thaksin Shinawatra before his removal in a 2006 coup, Kanit has been a champion of the need for low-interest rates to boost growth, Reuters quoted finance ministry officials as saying.

“It is quite alarming to see a conflict of interest from the cross-appointments of government allies to the central bank’s board,” Sompop Manarungsan, an economics professor at Bangkok’s Chulalongkorn University, said.

“We aren’t seeing good governance, not even in the monetary and fiscal policy-making circles in this government,” he said.

The BoT board has the power to appoint a new seven-member monetary policy committee (MPC) to replace the current one, whose tenure expires this month. The MPC is next due to meet on Aug. 27.

Samak’s six-month-old and unpopular coalition is locked in a bitter dispute with the BoT over how to tackle decade-high inflation at a time of stuttering economic growth.
It wants to stimulate growth with politically popular measures such as handouts to the poor and farmers. The BoT is determined to raise interest rates to curb price rises.

The central bank raised interest rates for the first time in two years last month and Governor Tarisa Watanagase signalled more hikes were needed to quell inflation, which hit an annual 9.2 percent in July.

Analysts now wonder whether the new BoT board approved by the cabinet last week will undermine Tarisa’s efforts to rein in inflation by stuffing the next MPC with pro-growth champions.

Facing mounting street protests, a spate of lawsuits and dwindling support, Samak is loathe to do anything that could hurt growth and fuel more discontent.

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