Central bank governor's last option: quit
TOP finance officials were
amazed by the idiosyncrasy of MR Chatu Mongol, the Bank of Thailand governor.
Chatu Mongol boarded the wrong aircraft when he made his foreign trip. Instead
of heading to Washington DC to participate in the spring meeting of the World
Bank and the International Monetary Fund, Chatu Mongol flew to London to attend
a Merrill Lynch Investor Conference.
"I don't understand
why he went to London because he should have come home quickly to work on the
more pressing problem of the Financial Institution Development Fund or gone to
Washington DC to attend a more important meeting of the IMF," said Supachai
Pisitvanich, the permanent-secretary for finance.
At home in Bangkok, on
Tuesday, the Cabinet approved a bailout plan for the Krung Thai Bank, which will
be dumping Bt537 billion of its bad debts into an asset management company
bankrolled by the FIDF. This rescue mission of the state-controlled bank is very
important in restoring confidence to the Thai banking sector, hampered as it is
by high non-performing loans and snail-pace restructuring. But the governor, as
chairman of the FIDF, was not there to do his job.
Anyway, Chatu Mongol was
supposed to represent Thailand at the important IMF meeting in Washington DC,
held in the middle of this week. But he apparently avoided a face-off with
Tarrin Nimmanahaeminda, the finance minister, who was slated to chair a
development committee of the Group of 22 countries. For over a month, Chatu
Mongol has incurred the wrath of Tarrin and the Democrats. Their conflicts range
from the legal reform of the Bank of Thailand, the method by which the FIDF's
debt should be compensated, the status of Luangta Mahabua's fund and, most
recently, the charges the governor filed against Sirin Nimmanahaeminda, the
finance minister's younger brother. These conflict have intensified to the point
that the governor's job is being jeopardised.
The feud between the
governor and the finance officials reached fever pitch on Tuesday when Chatu
Mongol made scathing remarks against the Finance Ministry at the Merrill Lynch
Investor Conference. He made it clear that the Finance Ministry would be
undermining the stability of the central bank in the long run if it opts for a
short-term gain by using the excess reserves to relieve its fiscal burden.
(There would be excess reserves of about Bt10-Bt100 billion after the merger of
the accounting books of the central bank's Note Issue Department and Banking
"Weakening the central
bank resources so substantially that the fiscal burden would significantly be
reduced is probably a self-defeating proposition," Chatu Mongol said.
"Because a weak central bank would cause much more problems than a large
He added: "The central
bank is not the agency fiscalising these problems, and it is the Ministry of
Finance which has the duty of doing this. We have indicated these ideas but they
are going to have to do the calculations and convince themselves.
"I don't think the
minister, as an ex-banker and one who worries about the country, is going to
really weaken the Bank of Thailand just so that you could get away with a small
fiscal burden in the beginning but probably not in the end, because a weak
central bank is the most expensive proposition you can force on a country."
Then he went on to outline
a number of issues which he believed might undermine the central bank's
stability if the excess reserves are used for fiscal purposes. Exchange gains
happen because the baht has weakened against the US dollar. But in the event of
a baht appreciation, the governor said he was afraid that he might have to book
foreign exchange losses.
The entire affair greatly
disturbed the finance officials, including Tarrin who received a faxed copy of
the governor's statement.
At home, when the governor
had been asked to clarify the whereabouts of the charity fund and the impact of
using excess reserves to pay off the massive debt of the Financial Institution
Development Fund, he was very economical with his words. This created widespread
confusion in the country since the issue of foreign exchange reserves is very
But when he went to London
on his own, the governor provided a systematic and comprehensive argument to a
foreign audience over why he disagreed with the use of excess reserves. His
London appearance made him look good among the international bankers and
investors while the finance minister and his aides were painted as the bad guys,
who did not understand the integrity of the central bank. Ironically, Chatu
Mongol spent his entire career in the Finance Ministry before crossing the line
to become governor of the central bank in 1998.
More importantly, Chatu
Mongol's remarks have defied the Cabinet's resolution. In Thai bureaucratic
practice, a Cabinet resolution is a Bible that has to be followed strictly. On
Feb 29, the Cabinet approved a proposal to use the excess reserves to pay off
the FIDF's debt. In March, the central bank formally held a news conference to
endorse this practice. So Chatu Mongol's London remarks against the resolution
amount to a shower of contempt over the Cabinet. He might be right that the
excess reserves should not be used - or wrong. This is an academic problem that
can be debated forever and in the end nobody knows the definite answer. But
Chatu Mongol cannot defy the Cabinet's resolution. The only weapon he has is to
resign to send a message of defiance against the government's policy. It is no
longer appropriate for him to continue to keep his job when he is certain that
he can no longer work with the government. This is what independence in central
banking is all about.
BY THANONG KHANTHONG