LEADING economist Ammar Siamwalla has urged a complete revamp of the traditional role of the Bank of Thailand if the government is to live up to expectations in its management of macroeconomic stability.

Now that the the baht has been floated and the Thai economy has become more globalised, it is necessary for the central bank to undergo a serious self-examination, which should lead to a functional reorganisation.

Ammar, a staunch advocate of the baht devaluation, thinks that management of the monetary policy under the managed float foreign exchange regime will become more complicated, possibly leading to a growing conflict between the banking regulators and politicians.

In the past, the conflict had been largely subdued thanks largely to the central bank's heavy reliance on monetary policy to hold the baht stable under the fixed exchange regime. By doing so, the central bank automatically succeeded in bringing inflation under control.

But the baht flotation will totally change the name of the game, making it necessary to readjust the role of the guardian of macroeconomic stability. ''The Bank of Thailand Act should be amended to clearly redefine the relationship between the finance minister and the Bank of Thailand governor. Hopefully, this redefinition of their roles should bring about a smoother relationship between the two," he said.

Soon after the Labour Party took over the British government, the new chancellor of the exchequer, Gordon Brown, controversially handed the Bank of England independence in managing the monetary policy. During the conservative reign, the chancellor of the exchequer and the central bank governor frequently haggled over the interest rate policy.

But Brown stopped short of giving the Bank of England a blank cheque. He also appointed a number of outside experts to sit on the bank's policy-making body, hence making the institution more accountable to the public interest.

Ammar went on to question the conflicting roles of the Thai central bank as lender of last resort and also as examiner and supervisor of the financial institutions. He proposed that the central bank limit its role to managing price stability and turn over supervision of banks and finance companies to another body.

''If there is to be no change in this functional role, the government should re-examine its present stance that it will assume full responsibility for the risks of the financial institutions. Some of these risks must be transferred to the shareholders, the creditors and the depositors," Ammar said. ''More importantly, the supervisory body must provide detailed information surrounding the status of the financial institutions in a transparent and timely fashion."

Ammar also criticised the fundamental philosophy of the Bank of Thailand in its attempt to provide guidelines for the development of banks and finance companies. While the regulators promote competition among banks and finance companies as a development of the Thai financial system, in practice they extend almost full protection to the licensed banks and finance companies, he added. The underlying premise is that banks and finance companies are too big to fail.

Now the banking regulators have embraced a completely new policy by enticing stronger finance companies into bailing out their weaker peers in return for bank licences, he said.

A final traditional role of the central bank that should be re-examined is its role as promoter of sectoral economic growth, Ammar said. Ammar explained that it is quite contradictory that the central bank, whose main task is to manage price stability, is also assigned a leading role in promoting sectors it deems important to spurring economic growth.

By doing so, the central bank inadvertently is chief advocate of the industrial policy, which runs into conflict with its monetary role.