February 1, 2008

Dr Surapong Suebwonglee, alias Dr Liap, has told reporters that the new government would remove capital controls once it is in power. This is a rather bold statement, coming from one of the most powerful persons in the People Power Party and a confidant of Thaksin Shinawatra.

Surapong faces the first test over capital controls

The following day, Tarisa Watanagase, the Bank of Thailand governor, said with the global financial volatility, it might not be appropriate to end the capital controls at this juncture.

As you can see, Tarisa, who has spent most of her central banking career in the supervision department, is a tough lady. She has fought the Finance Minisry's attempt to reclaim the power to supervise the banking and finance institutions from the central bank. Now she is defending the central bank's masterpiece policy of capital controls imposed in late 2006 to curb the baht rise.

As the baht has broken through the Bt33/dollar to the Bt32/dollar level, the authorities are having a hard time managing the baht stability. Allowing the baht to strengthen further would hamper the export growth. Exports remain the strong engine of the Thai growth, although this year domestic demand should feature more promiently in government policy.

"Removing the capital controls at this juncture is the worst timing. We should wait a bit longer until the situation improves," a senior banker told me. The banker did not agree with capital controls in the first place.

But now that the capital controls have been put in place and have been watered down quite significantly since their introduction, it would be better off to wait for a while until the financial storm hitting the US subprime loan market has passed over.

This has already created a dilemma to Surapong, who has yet to formally be appointed as finance minister. If he goes ahead to remove the capital controls, he would risk allowing the baht to strenthen quickly and harm the Thai exports. If he backs off, he would be seen as swallowing his own words in the early part of his tenure.

By the way, managing capital controls lies in the power of the Bank of Thailand governor -- not the finance minister. So it is rather strange that the government can interfere in the administrative measures of the central bank.

***************************************************

Speaking about the Samak Cabinet in the making, most of us are feeling rather frustrated with the whole selection process. From the start, we weren't sure whether Samak would be really nominated as prime minister as Banharn Silapa-archa was also waiting in the wing.

Even now we aren't sure who will be the head of the economic team of the Samak government. Mingkwan Saengsuwan has been sending out signals that he is the economic tzar of the Samak government. He will be serving as deputy prime minister and also commerce minister.

In this case, will Dr Liap, as finance minister, have to report to Mingkwan? Apparently, both of them are not finance men. Mingkwan is a good marketing guy, while Dr Liap is more of a strategist rather than a public policy makers. Samak Sundaravej, the prime minister, is not well versed in economic matters either.

So who is actually the economic tzar? It looks like Surapong is getting an upperhand over Mingkwan.

The message from the People Power Party is that we should not worry about the economic ministers because the party has a strong staff support team. All ministers will have to follow the party's guidelines.

Does that mean Surapong is going to simply be serving as nominee finance minister? Surapong may be working under the shadow of Dr Thanong Bidaya, the former finance minister under the Thaksin government. Thanong is one of the most trusted aides of Thaksin as he used to be his fund manager. Thanong should be working as a tutor for Surapong.

Uhmm.. runing the country's economic policy requires the best mind. The finance minister can't go back to seek consultation with the People Power any time there is a crisis in the stock market or in the baht currency.

We don't know the face of the economic ministers of the Samak more than a month after the general election. This can only mean that there have been frantic negotiations or horse trading behind the scenes among the six-party coalition government for the Cabinet portfolios.  

There is no unity at all the economic team of the Samak government in the making because the ministers will come from different parties. The People Power controls the Finance Ministry, the Commerce Ministry, and the Transport and Communicaty Ministry. The Puea Pan Din Party takes over the Industry Ministry and the ICT Ministry. The Chat Thai heads the Agriculture Ministry and the Sports and Tourism Ministry. The Ruamjai Thai Chat Pattana gets the Energy Ministry.

Now how are these ministers going to coordinate to achieve unity in their policy implementations?

Pretty soon, they will start fighting for the pies. At the same time, Thailand will also get the hit from the US subprime market meltdown. Things do not look rosy for the Samak government's economic team from the outset.