Central bank's independence must be upheld

The committee to select the new chairman of the Bank of Thailand is set to name its choice in the next few weeks after the tenure of the former BOT chairman MR Chatu Mongol Sonakul ended last month.

The contest for the chairman’s post now boils down to two contenders: MR Chatu Mongol and former deputy prime minister Virabongsa Ramangkura, who has apparently received full backing from Deputy Prime Minister and Finance Minister Kittiratt Na-Ranong. MR Chatu Mongul is nominated by the Bank of Thailand.

Traditionally, the role of the central bank’s board chairman does not affect the livelihood of people as much as government policies. But the selection process this time has caught the public’s attention because the two contenders have different thoughts on how to run the country’s monetary policy.

MR Chatu Mongol, formerly the central bank’s governor and a former permanent secretary at the Finance Ministry, is known to value the independence of the central bank, whose mission is to guard against monetary instability. He disagrees with Prime Minister Yingluck Shinawatra’s government’s plan to use the country’s huge foreign reserves of more than US$178 billion to finance populist policies. He says this could affect the credibility of the country’s monetary policy and, subsequently, the value of the baht.

Virabongsa is currently chairman of Prime Minister Yingluck's advisory team and also the chairman of the Strategic Committee for Reconstruction and Future Development. Virabongsa favours using the nation’s fiscal reserves to finance the government’s projects, and wants a weak baht in order to boost the country’s exports.

The chairman is not solely responsible for the country’s monetary policy, for he or she has to work with the central bank’s governor, BOT staff and the board to determine monetary policy. At any rate, the person who chairs the central bank will have an influence on the perception of the BOT, which should be independent and free from political influence.

Over the past few months, Finance Minister Kittiratt has publicly argued with the central bank’s governor, Prasarn Trairatvorakul, over monetary policy. The government wants to see a high economic growth rate, which it considers the measure of its economic success. Kittiratt thus wants the central bank to ease the monetary policy by lowering interest rates to promote consumption and exports. 

Nonetheless, Prasarn prefers to see the interest rate move in line with the real economic situation, to ensure stable growth. 

Differences between the Finance Ministry and central bank can be seen as desirable. Constructive argument is essential in the decision-making process in a democratic system. Honest debate will lead to a balance in policy implementation, which should consider all aspects of the economy, not only the level of economic growth but also price stability – which is the mission of the central bank. 

In fact, the government should embrace different views from different agencies in order to fulfil other economic responsibilities such as job creation and social mobility. If the government recruits only those it can easily influence, it will fail to receive different and constructive opinions, at the expense of the public interest.

In addition, the government should look at the big picture by encouraging all ministries to fulfil their missions to the best of their ability, instead of merely trying to use the interest rate to stimulate growth that is not sustainable. For instance, has the Finance Ministry fairly expanded the tax collection base to increase government revenue? Or has the Industry Ministry enhanced the capacity of Thai industries to increase their export growth? The answer is no. 

Both MR Chutu Mongol and Virabongsa are respected economists. None would question their qualification to chair the BOT. But there are many other aspects for the selection committee to consider such as the public’s perception over the independence of the central bank and the integrity of the central bank as an independent pillar in protecting the country’s economic interests.

While the central bank’s chairman may not be involved in day to day operations, the choice of chairman will have an impact on the image of the central bank, whose integrity, credibility and independence must be upheld and protected.