Thailand has no plan to adopt currency board
Thailand has no plan to adopt currency board
BANGKOK (Reuters): Thailand has no plan to establish a
currency board and it is confident that the market can see the
difference between economic problems facing the country and
Indonesia, government spokesman Akapol Sorasuchart said
yesterday.
Akapol quoted Finance Minister Tarrin Nimmanahaeminda as
telling an economic ministers meeting that Thailand was watching
Jakarta's decision on whether to peg the rupiah to a hard
currency.
The spokesman said: "If problems faced by Indonesia are
prolonged, they may affect Thailand to some extent."
Akapol echoed statements made by Thai economic ministers in
the past few weeks that Bangkok is confident that the market
could separate Thai economic problems from those faced by
Indonesia.
"Thailand has no need to use the currency board system. We
have reached the point of the IMF completing its review of the
Thai economy, for its third disbursement of funds under the
bailout package. We believe the market could differentiate
between Thailand and Indonesia," he said.
The IMF is expected to approve next month a third US$1.8
billion tranche of loans under a $17.2 billion international
bail-out package for Thailand.
Not panacea
In Tokyo, Mary Davis, a currency strategist at Credit Suisse
First Boston (CSFB) told a seminar yesterday that CBS was not a
panacea for Asia's currency markets.
"Currency boards have been proposed as a possible solution,
particularly in Indonesia. But in my view, currency boards are
not a panacea," said Davis, who is director of CSFB's Emerging
Markets Group in Singapore.
Countries must have a sufficient levels of reserves to honor
the conversion commitment, Davis said.
"They need to have enough reserves to be able to cope with a
capital outflow from the system. For example, debt servicing and
any other capital outflows that may result," Davis said.
"So it is rather difficult for a country with a substantial
current account deficit to maintain a currency board because of
the ongoing drain of reserves from the system," she said.
In addition to a sufficient level of foreign reserves, a sound
banking system and a sound fiscal policy are also conditions for
maintaining a currency board, Davis said.
"You also need a pretty sound fiscal policy. If government
debt is rising very rapidly and debt-servicing costs rising with
it, then the whole credibility of the currency board may be
called into question.
"It (currency board) is a pretty rigid system...You need to be
able to commit to a high level of discipline in your monetary
system to be able to sustain it," Davis said.
She said the Indonesian rupiah faced risks due to political
uncertainties in the country and the ongoing dispute over the
currency board plan.
"If Indonesia were to stick with orthodox policies and do the
right things, then clearly the rupiah could appreciate
substantially from 10,000 (to the dollar)," she said.
"But unfortunately, there is some risk that IMF support may be
withdrawn. In those circumstances, it's very difficult to say how
far (the rupiah) could go."