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Published on July 24, 2007

The proposal was made yesterday during the joint public-private committee meeting at Government House, chaired by Deputy Prime Minister Kosit Panpiemras, as part of a series of measures to curb the baht's appreciation, which has started to adversely affect exporters.

The meeting was held before today's Cabinet's meeting to discuss measures to deal with the baht's rise.

A Government House source said that the private sector suggested that the government allow companies to make trade transactions in dollars. For instance, when a local company imports a product from its headquarters overseas, it could do so in a US-denominated sum without having to exchange the money into baht first.

However, the central bank told the meeting that it had to thoroughly consider this proposal because it would lessen the importance of the Thai currency and may create a "dollarisation" situation at the expense of the baht.

The BOT's representatives told the committee that the central bank needed one week to consider this proposal, the source said.

Nonetheless, the meeting agreed to two other key proposals. One is a proposal from the private sector to set up two funds with a combined value of Bt5 billion. Of this, Bt4.5 billion would provide loans for small and medium enterprises (SMEs) and the remaining Bt500 million would provide loans for companies that already have non-performing loans, the source said.

The central bank would contribute 50 per cent of the SME fund and the other half would be provided by commercial banks. The BOT would contribute 90 per cent of the NPL fund and the remaining 10 per cent would be provided by banks, according to the source.

The committee has also agreed to set up a special committee to help unemployed staff of companies affected by the strengthening baht.

"The [joint public-private] committee has discussed Thai Silp South East Asia Import Export Co. This special committee will help on issues such as how to compensate unemployed staff," the source said.

Today, the measures from the private sector as well as the package from the central bank will be proposed to the Cabinet for approval and are likely to be announced later.

Yesterday the baht closed at Bt33.69-33.73 after reaching a 10-year high of Bt33.22 early this month. The SET index closed 1.42 per cent up, at 862.62.

Meanwhile, Finance Minister Chalongphob Sussangkarn recommended that a joint committee should be set up to monitor the baht as a replacement for the soon-to-be-revoked Exchange Equalisation Fund (EEF).

He said that brainstorming between related entities including the BOT, the Ministry of Finance and the Ministry of Commerce, which has been done in the EEF meetings so far, was beneficial as it would provide mutual monitoring of the situation in the foreign exchange market.

"The monitoring of the baht by the related organisations should continue, although the central bank is required in the draft BOT Act to report the situation to the Finance Ministry continuously," said Chalongphob.

The minister said the central bank should "manage" the baht in order to reduce fluctuations, although a series of measures were to be introduced to boost demand for dollars and facilitate the BOT's baht management.

"If the central bank manages the baht seriously, we will see results like last week when the baht was stable and weaker. If we have a strong intention to ease the baht's appreciation, the market will see what we want it to see," said Chalongphob.

Tarisa Watanagase, the BOT's governor, said the package would facilitate business management and help reduce operating costs. It depended on the private sector whether it brought money out of the country as it has been encouraged to do.

She said the business sector should discuss the SME fund in detail with financial institutions. This approach could solve the problem efficiently as the BOT would provide financial support for SMEs and SME exporters.

She insisted that the offshore and onshore baht markets were disconnected but the central bank has relaxed measures for non-residents with underlying transactions to reduce psychological effects.

Meanwhile, in reaction to violent anti-junta protests over the weekend, Pramon Suthiwong, chairman of the Board of Trade, said that political demonstrations were common in any democratic country. However, he urged demonstrators to express their views in a peaceful manner and refrain from using violence. He also urged the government to find ways to curb the further rise of the baht.

Chukiat Opaswong, president of the Thai Rice Exporters Association, said the private sector was concerned about the situation and did not want to see violent protests again because the country was already suffering from the baht crisis.