Premier's intervention wont resolve BOT-Finance rift

In fact, I am not sure that Dr Virabongsa was serious in making the suggestion. In fact, it was more like an afterthought during a surprise press conference he called last Thursday. It was clear that his intention to hold the media session was to dramatise the “failure” of the central bank in curbing the rise of the baht.

Virabongsa made no secret of his fear that that, if nothing is done to solve the problem, the country could “sink to its demise or the economy could go into bankruptcy”.

But he devoted a great amount of time to discussing how difficult it is to dismiss Dr Prasarn Trairatvorakul from his post as the central bank’s governor.

In fact, earlier reports said the premier, in a meeting of her kitchen Cabinet last week, had posed the question of how the bank governor could be legally replaced. Her office has yet to issue a denial to that story.

Finance Minister Kittiratt Na Ranong has gone on public record as saying he is “thinking about replacing the central bank’s governor every day”.

There is little doubt that the government is quite unhappy with Prasarn for not being “obedient” enough on a number of controversial policy issues, the latest being the repeated suggestion by Virabongsa and Kittirat to reduce interest rate to curb the strengthening baht.

Prasarn has argued, both publicly and in official government documents, that bringing down the interest rate won’t solve the problem. But then, under the law, decisions on interest rates don’t rest with the governor. The Monetary Policy Committee (MPC) is the official organ to review interest rates on a regular basis. The central bank’s governor is only one member of the MPC, although the finance minister appears to believe that the governor can influence most, if not all, of the MPC members.

Can the central bank’s governor be sacked? Under the law, he can be removed from office by the Cabinet on the recommendation of the finance minister – not for defying political wishes or orders, but for “serious misconduct or dishonest performance”.

The BOT says the MPC is in charge of interest rates. The finance minister holds the BOT responsible for the strong baht. Virabongsa, as the BOT’s board chairman, insists that he doesn’t really want to see Prasarn dismissed. Perhaps he has read all the clauses in the law and come to the conclusion that sacking Prasarn for disagreeing with the government would make things worse.

Does he really think the premier’s direct intervention will resolve the conflict between the central bank and the Finance Ministry? 

This isn’t an issue between two politicians fighting over respective interests over which the prime minister has total control. This is, in fact, a normal and healthy divergence of views over whether interest rates are related to the strengthening of the currency – and what policy options are the most appropriate. It’s not about sharing the cake. It’s about academic analysis and pragmatic experience. It’s about mutual respect between politicians and technocrats. 

It’s not about threats of dismissal or you-scratch-my-back-and-I’ll-scratch-yours compromises. It’s about mature, responsible people putting all the arguments on the table and realising there are no panaceas, then deciding on the most practical monetary tools while closely monitoring and checking on the outcomes.

Political intervention will only raise more questions than answers. Restoring mutual respect and professionalism between the Finance Ministry and central bank, as well as the MPC, is the only path to a real solution.