Newly appointed Finance Minister Chalongphob Sussangkarn did not spell out clearly yesterday whether the capital-control measures would be revoked, saying it remained necessary to control capital flows and any changes would be done gradually.

On his first day in office he also made it clear the government should maintain "good relationships" with foreign investors, in a signal that he would be willing to make changes to the draft amendments to the Foreign Business Act (FBA), which have spooked foreign investors.

He also said only "one or two" lines of the mass-transit system should be implemented by the current government, instead of the five lines approved by former finance minister MR Pridiyathorn Devakula.

Chalongphob also said he did not agree with any law or regulation that provided blanket protection for local Thai firms.

Pridiyathorn was blamed by foreign investors for imposing protectionist policies after the Cabinet approved the draft amendments to the FBA, which place more restrictions on foreign investment.

"We have to maintain good relationships with our foreign counterparts otherwise our competitiveness will be lost," said Chalongphob.

However, he conceded that this was his own opinion and that he needed to consult with other ministers.

On capital controls, he said: "Personally I think the capital controls are necessary. As of today, we need to be cautious and move slowly."

"Monetary policy is sensitive and affects the market, and problems arise when we do anything to shock the market. I assure you there will be no quick or harsh action to change what we have today; we'll find an appropriate measure. Indeed, there is a limitation on our financial management. If the baht were to weaken, it would be easier to improve measures."

Having criticised the measure, Chalongphob was expected to revoke it immediately. Exporters have sold the dollar on expectations the baht will further appreciate upon revocation.

Yesterday, thanks to intervention, the baht weakened slightly, but treasurers still see signs it will hit Bt34.80 against US dollar in the next couple of months.

The capital controls were imposed in December when the baht was about to breach the Bt34/dollar level.

On the Foreign Business Act, despite Chalongphob's caution, Commerce Minister Krirk-krai Jirapaet yesterday insisted on proceeding with the amendments.

He said anyone could express their own opinion, but the ministry responsible for the act, which was the Commerce Ministry in this case, would proceed as planned. He said Thailand needed more regulation to control foreign-owned businesses in the country.

"Foreigners who invest in Thailand have to respect the rules. The government believes investors in the real sector will be prompt in accepting any regulations, except some groups of investors whose only concern is short-term benefits," he said.

A source from the ministry said the amendments should be finalised in a few months.

Krirk-krai also said nothing would derail the Commerce Ministry's plan, even the appointment of the new finance minister. Krirk-krai plans to meet Deputy Prime Minister Kosit Panpiemras on Monday to discuss economic policies.

Chalongphob's notion that the mass-transit development should be scaled down also provoked surprise from Transport Minister Theera Haocharoen, who said he would seek a meeting with Chalongphob to discuss the necessity of maintaining the investment in all five routes.

Pramote Suriya, deputy director of the Office of Transport and Traffic Policy and Planning, said there could be a misunderstanding. Under the February 6 Cabinet resolution, it is clear the bidding for only two lines will start under this government, he said.

"On the rest, the government has just finalised the investment framework for the next government," he said.

In his first press conference, Chalongphob also noted that Thailand's economic prowess over the past 15 years lay in three dimensions: economic stability, efficiency, and friendship among Thais and between Thais and foreigners.

He expressed his disappointment that even friendships among Thais had been damaged as the country experienced political crisis, mobs crashing with mobs and violence in the deep South.

Regarding the relationship with foreign countries, Chalongphob argued that Thais should not shoot themselves in the foot, which would cost the country good relationships with foreign countries.

"We should use selective measures to deal with specific issues and apply specific laws in solving the issue of the telecommunication business," he said.

While the market speculated that Chalongphob would push the central bank to abandon its capital controls, Chalongphob conceded there was no clear measure to deal with hot capital flows, which forced appreciation of the currencies of many countries, not only Thailand.

The best solution is to take a gradual approach that does not shock the market, he said, and the movement of the baht should not be sharply down or up.

Chalongphob also advocated caution about public investment in mega-projects and the interim government should implement only one or two routes of the mass-transit system. The government should not proceed with all five because it could create a "fiscal burden" for the next government, he said.

The Cabinet previously approved five routes for bidding this year.

He also plans to reform state enterprises whose financial position is adversely affected by government policies to provide cheaper public services. The government should make a clear contract with a state enterprise when it wants it to provide cheaper public services, he said.

He vowed to bring transparency into fiscal policy, noting that the former government had concealed the real public debt from the public by using off-budget funds, largely from state-owned banks.

Wichit Chaitrong,

Petchanet Pratruangkrai

The Nation