A little self-interest ruins BOT boss's day
You would be wrong to think that MR Chatu Mongol Sonakul is mad over the watering down of his draft amendment of the Bank of Thailand Act.
For the governor of the Bank of Thailand, who has royal blood fully in his veins, really has nothing to be mad about. He'll do whatever he has to and then move on with life.
When Tarrin Nimmanahaeminda, the finance minister, asked him more than a year ago to look after Krung Thai Bank, he did so. He brought in Mechai Viravaidaya, the community developer, as chairman of the state-owned bank. Mechai went his own way in running the bank in his own particular style. It soon became clear that he could not get along with Tarrin. But that was not the whole problem. Tarrin was also mad at the BOT governor for bringing in "troublemaker" Mechai and for his failure to salvage the bank.
As Tarrin was not happy with Chatu Mongol's handling of Krung Thai Bank, he decided to have it returned to his regulatory oversight. Chatu Mongol gladly handed it back to him. What we witnessed thereafter was a snowball effect. As the scandal grew, Tarrin was forced to carry the burden of Krung Thai Bank around his neck for several months until the end of the no-confidence debate in December. Chatu Mongol would not have anything to do with it.
Now the same thing is happening again, with the Bank of Thailand Act. Following the Cabinet's approval of the draft amendment on Tuesday, some newspapers branded Tarrin a "bad guy" who was deliberately trying to rob the central bank of its independence. Tarrin did water down some of the articles in the original draft submitted by Chatu Mongol.
It is true Chatu Mongol has been trying hard to create a more independent central bank, free of political meddling, but the problem is that he is not a legitimate author of the bill. Law making is in the domain of MPs who represent the voice of the people. Now, you may not like most of the country's MPs, or you may think they do not represent the voice of the people in a practical sense. But that's a separate issue. As the central bank governor, Chatu Mongol is not in the business of making laws. He does not hold any legislative power to pass a law, even though he may have a very good idea of what a good law for a central bank of the future is.
In fact, the real author of the legislative amendments to the BOT Act is Tarrin, or the Finance Ministry. Since Tarrin, for technical reasons, does not have the legislative staff to help him draft a bill, he turned to Chatu Mongol to prepare it for him. He would then take the draft and do whatever he liked with it, before sending it to the Cabinet for approval. Finally it would go to the Parliament for debate and a vote. After the bill is passed, it becomes an act that reflects the aspirations of the people. Again, you might totally disagree with the law and hate the politicians who have passed it, but this is how the democratic process works.
Naturally, when Tarrin asked Chatu Mongol to work on the draft, the governor was obligated to do it. And since he had formed an ideal central bank in his mind and aimed to have it pursue inflation, targeting it as the cornerstone of its monetary policy management, he had the draft reflect this lofty goal.
Experts from the Federal Reserve Board System of the US, the Bank of England, the Bundesbank of Germany and the Bank of Japan were flown in to give Chatu Mongol advice on the new law. While the Federal Reserve Board System and the Bank of England have a long history of independence, the Bundesbank and the Bank of Japan have been around only since the end of World War II. Yet they are the most respected central banks on the planet.
"I did not have to tell them what kind of law for the central bank we would like to have because I knew they would suggest in the amendment a more independent central bank. And they did," said Chatu Mongol in a recent interview. Then he laughed in good humour.
"But it is going to be the finance minister's law, not my law," he added.
To make it more difficult for politicians to interfere in the central bank, Chatu Mongol had suggested in the draft that the Supreme Court president be given the power to remove the BOT governor. Moreover, the original draft suggested that the government must not be allowed to force the central bank to buy its bonds to finance budget deficits, as that would undermine the integrity of the central bank's monetary policy management.
Under the present law, the politicians, exercising power through the Cabinet, have the authority to fire the central bank governor. There have been precedents. Former finance minister Sommai Hoontrakool fired Nukul Prachuabmoh. Former prime minister Banharn Silapaarcha removed Vijit Supinit. Former prime minister Chavalit Yongchaiyudh dismissed Rerngchai Marakanond. And Tarrin fired Chaiyawat Wibulswasdi.
Tarrin was disappointed when he saw Chatu Mongol's original draft. For in his view, the ultimate power of appointing or removing the central bank governor must rest with politicians holding high office. Franklin D Roosevelt, one of the greatest US presidents of the 20th century, even passed a law so that he could have the power to impeach Supreme Court justices. In case a central bank governor mishandles his job and causes damage to the system, how can he be impeached quickly if the process is tied up in the Supreme Court?
Finally, the government did not feel disposed to put restraints on its mischievous handling of spending. If it were to spend money beyond its means, as it is doing with deficit spending to boost the economy, it would need to turn to the central bank from time to time. That's why the ideal central bank of Chatu Mongol has been brought down to earth. He will not, of course, have anything to argue about, for he'll just have to do what he has to do.
BY Thanong Khanthong