Thailand has no plan to adopt currency board<\/p>\n
BANGKOK (Reuters): Thailand has no plan to establish a
\ncurrency board and it is confident that the market can see the
\ndifference between economic problems facing the country and
\nIndonesia, government spokesman Akapol Sorasuchart said
\nyesterday.<\/p>\n
Akapol quoted Finance Minister Tarrin Nimmanahaeminda as
\ntelling an economic ministers meeting that Thailand was watching
\nJakarta's decision on whether to peg the rupiah to a hard
\ncurrency.<\/p>\n
The spokesman said: \"If problems faced by Indonesia are
\nprolonged, they may affect Thailand to some extent.\"<\/p>\n
Akapol echoed statements made by Thai economic ministers in
\nthe past few weeks that Bangkok is confident that the market
\ncould separate Thai economic problems from those faced by
\nIndonesia.<\/p>\n
\"Thailand has no need to use the currency board system. We
\nhave reached the point of the IMF completing its review of the
\nThai economy, for its third disbursement of funds under the
\nbailout package. We believe the market could differentiate
\nbetween Thailand and Indonesia,\" he said.<\/p>\n
The IMF is expected to approve next month a third US$1.8
\nbillion tranche of loans under a $17.2 billion international
\nbail-out package for Thailand.<\/p>\n
Not panacea<\/p>\n
In Tokyo, Mary Davis, a currency strategist at Credit Suisse
\nFirst Boston (CSFB) told a seminar yesterday that CBS was not a
\npanacea for Asia's currency markets.<\/p>\n
\"Currency boards have been proposed as a possible solution,
\nparticularly in Indonesia. But in my view, currency boards are
\nnot a panacea,\" said Davis, who is director of CSFB's Emerging
\nMarkets Group in Singapore.<\/p>\n
Countries must have a sufficient levels of reserves to honor
\nthe conversion commitment, Davis said.<\/p>\n
\"They need to have enough reserves to be able to cope with a
\ncapital outflow from the system. For example, debt servicing and
\nany other capital outflows that may result,\" Davis said.<\/p>\n
\"So it is rather difficult for a country with a substantial
\ncurrent account deficit to maintain a currency board because of
\nthe ongoing drain of reserves from the system,\" she said.<\/p>\n
In addition to a sufficient level of foreign reserves, a sound
\nbanking system and a sound fiscal policy are also conditions for
\nmaintaining a currency board, Davis said.<\/p>\n
\"You also need a pretty sound fiscal policy. If government
\ndebt is rising very rapidly and debt-servicing costs rising with
\nit, then the whole credibility of the currency board may be
\ncalled into question.<\/p>\n
\"It (currency board) is a pretty rigid system...You need to be
\nable to commit to a high level of discipline in your monetary
\nsystem to be able to sustain it,\" Davis said.<\/p>\n
She said the Indonesian rupiah faced risks due to political
\nuncertainties in the country and the ongoing dispute over the
\ncurrency board plan.<\/p>\n
\"If Indonesia were to stick with orthodox policies and do the
\nright things, then clearly the rupiah could appreciate
\nsubstantially from 10,000 (to the dollar),\" she said.<\/p>\n
\"But unfortunately, there is some risk that IMF support may be
\nwithdrawn. In those circumstances, it's very difficult to say how
\nfar (the rupiah) could go.\"<\/p>",
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