http://www.bangkokpost.com/business/...nancial-crisis
PM: No new financial crisis
Virabongsa Ramangura
- Published: 14/10/2010 at 04:22 PM
- Online news: Economics
There will be no repeat of the 1997 “tomyum kung” financial crisis as a result of the strengthening baht, as the private sector fears, Prime Minister Abhisit Vejjajiva said on Thursday.
“This is because the government is trying to deal with the problem in a way that does not distort the mechanism of the foreign exchange market.
“The past example showed that several countries had tried to weaken their currencies by intervening in the money market. But their attempts failed, mainly due to the policy to weaken the US dollar by the United States.
“The Bank of Thailand could lose more money for nothing if it continues intervening in the forex market, as it might fail to weaken the baht as expected.
"Moreover, it would not worth using such a huge amount of the country’s foreign reserves for such purpose,” said Mr Abhisit.
PM Abhisit Vejjajiva
He was confident there would be no second round of the financial crisis that began in 1997. He said the 1997 crash was caused by the attempt to distort the money market mechanism.
The government’s first round of the baht measures were mainly for minimising the negative impact of the baht’s appreciation.
The second round of measures will soon follow with an aim of speeding up investment and the import of machinery to boost the demand for foreign currency, the prime minister said.
State enterprises will invest about 50 billion baht under their business expansion projects in the last quarter of the year.
Asked about the call for the central bank to cut the repurchase rate or delay its plan to raise the policy rate to help ease pressure on the baht, Mr Abhisit said the BoT’s Monetary Policy Committee will have to take into account the foreign exchange rate at its next meeting.
He added that the central bank believes even if the policy rate is reduced, it will not help improve the strengthening baht situation.
The monetary policy panel is scheduled to meet on Oct 20.
Former deputy prime minister and finance minister Virabongsa Ramangura expressed concern that there could be another round of financial crisis, if the central bank fails to take any action to deal with the baht’s rise.
The second round of tomyum kung crisis will certainly take place in Thailand, if the baht rises to 25 baht against the US dollar, he said at a seminar on the strengthening baht.
He was also worried that the strengthening baht would lead to a broken bubble in the stock market, particularly in the shares of energy companies.
Energy companies made a huge profit this year, but from the foreign exchange rate not from a better performance, he explained.
Mr Virabongsa did not think the central bank’s latest measures to block capital inflow to curb the baht’s appreciation would work.
He suggested the central bank cut the repurchase rate (RP) to immediately halt foreign capital inflow.
“The meeting of monetary policy panel on Oct 20 should consider cutting the policy rate by 0.75 per cent so it stays at a similar level as that of the US. The rate cut will help weaken the Thai currency,” said Mr Virabongsa said.
Former finance minister Virabongsa Ramangura
He said the BoT should also clearly announce the ceiling limit it would allow the baht to rise to.
If possible, he said, Thailand should reintroduce a fixed exchange rate policy, as many factors allow it to do so.
“The country now has large foreign reserves and continues to gain a trade and current account surplus. It is safe to return to the fixed exchange rate policy at this time.
“Otherwise, the central bank should clearly state that it will continue with its managed floating exchange rate policy. This means that if the exchange rate rises higher than the limited level, the central bank will take action,” the ex-finance minister said.
In addition, the central bank should sell more bonds to absorb the excessive liquidity and to halt foreign capital inflow, as it had done in the past, he said.