Thai Prime Minister Sacks Central Bank Boss by Phairath Khampha 31 May 2001 Indicating that it would not allow independent control of montary policy, as befits a true capatalist democracy, the Thai government sacked the governor of the Central Bank, Chatu Mongol Sonakul, early in the last week of May 2001 following a dispute over monetary policy. Prime Minister Thaksin Shinawatra said he had not been satisfied with the bank's policy of keeping interest rates low. The row - which had been brewing in public for a week - had an impact both on financial markets and Thai politics. The outgoing banker is respected internationally and his departure raised questions about the independence of Thailand's Central Bank. He was be replaced by the president of Import-Export Bank, Pridiyathorn Devakula, a crony of Thaksin's. Low interest rates Thailand's central bank had been trying to revive the country's stagnant economy by keeping interest rates low. The dispute peaked when Prime Minister Thaksin discovered that Chatu Mongol Sonakul had been lobbying for his policies by e-mail, something the prime minister called managing economic policy by lobby rather than science. The Harvard-educated Bank governor argued that higher rates would not help revive the economy and that fiscal rather than monetary policies were the answer to Thailand's problems. But the fiscal policies he had called for would make it very difficult for Thailand's economic and political elite to steal the wealth of the nation. Government strategy The new government had supposedly aimed its policies at helping farmers and small businesses become more productive, and at restructuring the huge debt burden of the banking sector. But Prime Minister Thaksin wanted interest rates on deposits raised because it would help his cronies who had nowhere else to put their liquid assets while some sectors of Thailand's economy were still too untrustworthy to invest in. Government officials argued that low consumer confidence is partly responsible for low growth. Indeed, this was partly true, however the lack of confidence had its roots in a lack of trust on the par tof the public in the government officialdom and politicians, both of whom are seen as corrupt manipulators of policy and governance for their own greedy ends. However, at the same time Thailand's low interest rates have been a disincentive for investors, most of whom are Thaksin's cronies. But the bigger problem is the outflows linked to servicing debt. New Thai Central Bank Head Vows to Keep Independence Incoming Thai central bank Governor Pridiyathorn Devakula said on May 29 he would maintain the independence of the Bank of Thailand and would aim to ensure that interest rate policy deterred capital outflows. "Independence means we have our own opinion, and if we disagree (with the government) we'll tell them right away," Pridiyathorn told Reuters in a telephone interview. "If we agree, we also say so. We listen to others and choose to implement the best option." He said all respected previous central bank governors had followed a similar approach and had never "made a declaration of independence at the central bank." "If I totally disagree with any ideas, I have the right to resign, too," he said. Pridiyathorn said the central bank under his leadership would continue to study how to deter "excessive capital outflows" to maintain strong foreign reserves. "To maintain strong foreign reserves is the job that all central banks must do and it is the first priority," he said. Pridiyathorn said he would seek to work with the government. "I can cooperate with all parties and I am independent too. If we agree on ideas we can work together. If we don't, we can talk reasonably and iron out differences to reach agreement," he said. "That is the right way to work." He said the main reason to raise interest rates was not to boost consumption, as some government officials have suggested, but to maintain strong foreign reserves and deter outflows. Some government officials have suggested that higher interest rates will stimulate consumption by increasing the income of savers. "Interest rate policy is part of measures to help deter excessive capital outflows... To boost consumption, we need low interest rates," he said. Analysts said that akthough low domestic interest rates had sparked capital outflows, investment outflows were not significant at this point compared with outflows linked to debt servicing. The policy of raising interests rates would help the rich increase their holding, but would damage the country as a whole. Pridiyathorn said he would listen to government suggestions and make a thorough study before offering recommendations. "The current account has started to decline and we should start being concerned," he said. "There is nothing worrying today but if we let it stay like this for a year and did nothing, it would cause a problem." Pridiyathorn would officially take up his new post after an audience with King Bhumibol Adulyadej. The date for this had not yet been set.