ASEAN KEY DESTINATIONS
Thai government considers sovereign fund
He instructed the Bank of Thailand (BoT) yesterday to complete its study within one month.
If the central bank's study shows the idea is feasible, he will ask it to submit certain details on establishing the fund, including its size and who will manage it, Mr. Thirachai said.
By law, foreign reserves are needed to back up the Thai currency. The central bank also uses the reserves to manage the baht's foreign exchange rate.
Mr. Thirachai said the foreign reserves are equivalent to US$189 billion (5.67 trillion baht), enough to set aside a portion to establish a wealth fund without having an effect on the baht and on foreign exchange rate management.
He said Thailand should use the extra foreign reserves to make gains on investments, particularly in infrastructure projects in Asean countries and also in certain Asian nations which still need capital to develop infrastructure.
"The development of such infrastructure projects will also benefit Thailand as they will enable Thailand to link its transportation with the region's networks," he said.
The fund should be booked as a sovereign risk, meaning its gains or loss would be booked in the government's accounts and not the central bank's. This would protect the central bank from being affected by the performance of the wealth fund.
Mr Thirachai said part of the country's reserves are in foreign currencies whose values are declining as some countries are injecting more money into their economies. This depreciation would lower Thailand's foreign reserves.
The BoT's foreign reserves comprise US dollars and euros. The two currencies are under strong pressure due to the twin crises in the United States and the Eurozone.
The central bank recently converted part of its reserves into gold, but the greenback and the euro are still believed to form the largest portions of the reserve basket.
"This is the other reason for Thailand to earn higher gains to offset depreciation of its foreign reserves," he said.
Former finance minister Korn Chatikavanij said politicians must not interfere in the central bank's decision on whether it is necessary to set aside foreign reserves to set up the wealth fund. If it is set up, politicians should not be allowed to take part in managing the fund.
"The foreign reserves represent the country's economic stability and credibility, so politicians must not have any say in this," Mr. Korn said.
Letters that do not contain full contact information cannot be published.
Letters become the property of AseanAffairs and may be republished in any format.
They typically run 150 words or less and may be edited
submit your comment in the box below