BOT POLICY ROW: IMF stands firm behind governor
May 24, 2001
The International Monetary Fund has lent some heavyweight support to
the Bank of Thailand's low interest-rate policy, saying it is appropriate
in the face of a weak, but recovering economy.
The IMF's Asia and Pacific department director, Yusuke Horiguchi, said
the IMF team approved of the central bank's approach, which supported
Horiguchi offered his comments as debate raged about whether deposit
rates should be raised to stem capital outflow, and to reward savers.
Prime Minister Thaksin Shinawatra has ordered the central bank to conduct
a complete review of its monetary policy, and on capital movements, to
determine whether its low interest-rate policy is still relevant given
present macroeconomic conditions.
Apparently, the prime minister and his economic advisers believe the
low interest-rate policy, in place since late 1998, might be "overdone",
and has caused capital outflows.
Speaking after IMF consultations with Thai authorities, Horiguchi said
he was not concerned about the capital outflow, since it was largely corporations
paying off their external debts.
He said reducing the external debt burden would not only improve corporations'
balance sheets, but also the country as a whole.
It would also reduce Thailand's vulnerability to external shocks.
He said even though hiking the interest rate earned on savings would
make the baht more attractive, it would not significantly add to the wealth
of a majority of people with savings. Most accounts with at least Bt10
million in them were concentrated in the hands of a select few.
Horiguchi described the first step towards developing a working relationship
with the Thaksin government as "constructive".
After talks with the prime minister and Finance Minister Somkid Jatusripitak
yesterday, Horiguchi said Thaksin had assured him the central bank would
have the final say on interest-rate policy. The bank's independence would
He also suggested that although Thailand's public-sector debt was not
a source of concern at the moment, the Thaksin government should send
out a signal about its willingness to gradually move towards fiscal consolidation
in the medium term.
The IMF maintains that a fiscal deficit of 3.5 per cent at central government
level is achievable this year. But down the road, Thailand would have
to bring its financial house in order when it came to reducing public-sector
debt, he said. That debt is currently equivalent to 58 per cent of gross
Thaksin told the IMF delegation he expected Thailand to achieve a balanced
budget within four to five years. As for the prospects of economic growth
this year, Reza Moghadam, who is in charge of the IMF's Thailand desk,
said growth was likely to be at the "lower end of the central bank's
range". The central bank has projected growth to settle within a
range of 2.5 to 4 per cent this year, while the National Economic and
Social Development Board forecasts growth of 3 per cent.