Published on March 4, 2008
Now we understand more about capital controls and politics. As we all know, in politics timing is everything. Finance Minister Surapong Suebwonglee signalled in his first few days in office that he wanted to remove the controls. There followed a theatrical act between the Finance Ministry and the Bank of Thailand. The two bodies were trying to create the impression that they were working closely to determine the capital controls policy. Yet it was an open secret that Bank of Thailand Governor Tarisa Watanagase and her officials were strongly against removing the controls for fear that they would have their backs to the wall when it came to curbing the baht's appreciation.
After the Finance Ministry and the Bank of Thailand meeting two weeks ago, Surapong told reporters that he wanted more information from the central bank on the impact of removing the controls and other measures to cushion the Thai economy before making a decision in March or April when he would embark on an international roadshow. The opposition Democrat Party and most analysts questioned why Surapong had failed to show leadership on the capital controls. If he wanted to do it, why did he have to wait?
Surapong kept quiet. He knew exactly what he was doing.
As it turned out, Surapong was waiting for the return of ousted prime minister Thaksin Shinawatra before announcing the removal of the capital controls. Thaksin flew back to Thailand last Thursday. He announced that he would wash his hands of politics for good. But the political moves executed by the Samak government were orchestrated to coincide with Thaksin's comeback and create the impression that Thaksin was still the big boss. Tarisa had to backtrack by announcing on Friday the central bank's decision to remove the capital controls, which took effect yesterday.
The Samak government - with the shadowy Thaksin towering above - would like to send the clear signal that it will be adopting market-friendly measures. This is aimed at contrasting its policies with the poor performance of the Surayud government. Surapong will also be introducing tax measures to the Cabinet tomorrow to stimulate the domestic economy. The previous Thaksin government was good at handing out tax cuts, while squeezing out more tax revenue at the same time by shuffling money from the left pocket to the right one. And only Thaksin can do it.
Seripisut Temiyavej, the police chief, was also sacked from his office. When the Samak government came into office, the head of the Department of Special Investigation, Sunai Manomai-udom, was the first casualty. Thaksin has to reclaim the police force. Seripisut tried to save his job by agreeing to let all senior officers belonging to the Thaksin camp be transferred back to their powerful posts. Still, Seripisut could not save his coveted position.
Then can Tarisa save her job? Surapong said an interview with Matichon that he had no intention of sacking Tarisa as rumoured. He said he could work well with the governor.
But the people in the financial markets have been speculating that it's only a matter of time before Tarisa is removed. Thirachai Phuvanatnaranubala, the secretary-general of the Securities and Exchange Commission (SEC), has emerged as a top candidate for the job. Thirachai was a central banker before he took the top position at the SEC. Thirachai has political ambition. He will be working well with Surapong's advisers, none of whom like Tarisa.
During the Thaksin government's term, MR Pridiyathorn Devakula, the central bank governor, was able to carve out the central bank's independence. With his glowing stature, Thaksin found it impossible to remove Pridiyathorn. The Samak government, in which Surapong has become one of the most powerful ministers because of his direct contact with Thaksin, might not want history to repeat itself. It remains to be seen how long it will tolerate the independence of the central bank, which has been conservative in combating inflation. But the Samak government is pursuing a pro-growth policy in full force, aiming to achieve a high economic growth rate of 6 per cent. But this high growth rate would come at a cost. With inflationary pressure, we need an independent central bank to manage inflation. It is fine that the capital controls have now been removed, but we can't afford to sacrifice an independent monetary policy.