Thai official says new policy vital

Thailand’s Finance Minister Pridiyathorn Devakula has called for China to allow its currency to rise against the dollar and defended his country’s foreign currency controls he said were imposed to save the country’s export-dependent economy.

“If currencies of our [export] competitors appreciate more or less at the same level as ours, I don’t think we would need this measure anymore,” Pridiyathorn said in an interview.

“It would help a lot [if China revalued the yuan], but it would depend on the degree of revaluation,” he said.

Pridiyathorn, a former central bank governor and U.S.-trained economist, said he watched with alarm as foreign investors poured three times more cash into the country in the first week of December than they did on a typical week in November, sending the baht to a nine-year high against the dollar.

In response, Thailand slapped controls on foreign investments last week in an effort to contain the rise in the baht.

Thai officials declared that foreigners effectively could invest only 70% of the money they transferred into the country; the rest would be held in reserve by financial institutions. If investors tried to withdraw the money within a year, they would forfeit 10% of the total.

“A small nation like ourselves -- if we don’t protect ourselves, who else will protect us?” Pridiyathorn said.

With exporters complaining about the strengthening baht, he said something had to be done to rein in speculators who were behind the surge and protect the economy.

Although the measures imposed Monday inflicted pain on investors, failing to stem the baht’s rise would have had even worse negative long-term consequences for economic growth and the stock market, he said.

“If we didn’t do anything, the stock exchange would have plunged further and the catastrophe would have been more severe,” he said.

Still, Pridiyathorn -- who until now has courted little controversy -- and the Thai central bank have faced a barrage of criticism from investors inside and outside the country who endured a wild financial ride since the controls were announced.

Thai shares plunged nearly 15% on Tuesday -- rattling regional stock exchanges -- but then bounced back 11% on Wednesday after authorities rescinded the curbs on foreign stock investing while retaining them on bonds and other debt instruments. The market flattened out the rest of the week.

The baht, meanwhile, weakened more than 3% over the course of the week after hitting a nine-year high Monday of 35.09 per dollar. Pridiyathorn pronounced himself satisfied Friday that the measures had achieved their desired effect on the currency.

No financial greenhorn, Pridiyathorn is a respected member of the interim Cabinet appointed by the military after the September military coup that ousted elected Prime Minister Thaksin Shinawatra.

After getting an MBA from Wharton School of Business at the University of Pennsylvania, he spent the next three decades in the country’s commercial banking sector before becoming the country’s central bank chief in 2001. But last week’s events -- particularly the policy flip-flop -- have tarnished Pridiyathorn’s reputation a bit.

“The measures were too strong and beyond the comprehension of investors,” said economist Teerana Bhongmakapat of Bangkok’s Chulalongkorn University. “It shows that the policy was made without thorough consideration.”

Pridiyathorn also said during the interview that the capital curbs were temporary but gave no time frame for when they would be lifted.