FORMER deputy prime minister Dr Virabongsa Ramangkura yesterday expressed alarm at the central bank governor's insistence upon not pursuing a more balanced economic policy, amid the current uncertain outlook. He was responding to a statement by MR Chatu Mongol Sonakul, governor of the Bank of Thailand, that the monetary authorities would not adopt a weaker exchange policy for the baht because this would be ''worthless'' in the long run, and that the country would do better to pursue fundamental policies such as improving the quality of products.
''We could possibly run into a second financial crisis later this year or early next year. The government has to change its philosophy in managing the economy,'' Virabongse said.
''It should not operate under a preconception that the economy will improve, but rather try to achieve greater balance and stability in the economy.''
Both men were participating in the debate on the Thai economy's outlook, moderated by MR Pridiyathorn Devakula, president of the Export-Import Bank of Thailand, and organised by the Reporters' Association of Thailand at the Queen Sirikit National Convention Center. Deputy Prime Minister Supachai Panichpakdi and Bangkok Bank executive chairman Kosit Panpiemras were also on the panel.
Virabongsa painted a gloomy picture for the Thai economy -- noting that it might have already slipped into a liquidity trap, or a situation where the economic system is awash with money but with little accompanied investment or spending; or into a state of deflation where falling prices lead to further reduction in purchasing power among consumers and firms.
He cited in particular the falling wholesale price index of minus 6.4 per cent and minus 7.8 per cent in the first two quarters of 1999 respectively -- in part reflecting higher inventory built up by battered firms. The economy, he said, was still retreating, as the one percentage-point target growth rate this year must be set against a GDP contraction of 9.4 per cent last year, and not minus eight as initially forecast.
Supachai tried to put on a brave response on behalf of the government in the absence of Finance Minister Tarrin Nimmanahaeminda who could not join the much-awaited debate. He conceded that statistics have fallen short of showing a real economic recovery, but that the lowest ebb had been passed. Supachai, who like Virabongsa is considered among the country's best economists, attributed falling prices to the reduction in value added tax and to the revaluation of the baht in the past two years.
He said that recovery will in the end depend on the rehabilitation of financial institutions, especially banks. He noted that the government has probably exhausted its budgetary and financial resources to stimulate the economy -- and that a more aggressive export policy will have to be pursued, with further tax measures and a special exchange rate policy.
Supachai and Tarrin are known to have different views on what Thailand should do with the exchange policy.
Kosit took pains to explain the complexity of macroeconomic indicators. In short, he attributed rising domestic output and falling national income to external factors which have pressured a fall in prices. He said the economy is undergoing a ''weak recovery'' process, but that whether this will be sustained would depend on performance over the next few months. ''Exchange policy will play an important role,'' said the former finance minister.
Kosit cited the latest figures for June from the Customs Department, showing that imports in US dollar terms might have risen as much as 24 per cent on a year-on-year basis. ''We do not know whether this is a good thing or not. This remains to be seen.''
Chatu Mongol said interest rates have now been brought down as a means of stimulating consumption and investment. The authorities have also achieved success in bringing down the country's total external debt, from US$94 billion to US$81 billion, without volatility in the exchange rate. He maintained his opposition to the use of the exchange rate as a mechanism to manipulate economic activities -- insisting that changes to the fundamentals of production and product quality were critical to success in the long term.
His statements drew heavy criticism from Virabongsa, who said he was even more alarmed at points made by the central bank governor. Virabongsa did not rule out a second financial crisis, noting uncertain situations regarding the ''bubbling'' US economy and the Chinese yuan. He said foreign exchange has a pivotal role in determining the economy -- noting that the value of the Thai baht against the US dollar is stronger than the exchange rates of the Filipino peso, the Malaysian ringgit or Korean won.
Virabongsa called for a more balanced economic policy, and said that while he did call for a lower interest rate, the central bank had let it fall too far. ''The Bank of Thailand is the keeper of the water gate, but it is not doing its proper job of balancing [the flow of water].''
The Nation, July 20, 1999
Go back to the Main Page