Thailand’s Finance Minister Pledges No `Shock’ Rules

By Anuchit Nguyen

Thailand’s Finance Minister Chalongphob Sussangkarn, appointed to the junta-backed government this week, said he has no plans to startle investors still reeling from new ownership restrictions and currency controls.

“Government policies must be implemented to boost confidence, not destroy it,” said Chalongphob, a critic of his predecessor’s investment restrictions. “There will be no policies that will shock the market.”

Thailand’s consumer confidence slid to the lowest in six- months in February and business confidence dropped to a four- month low a month earlier after Bank of Thailand currency controls in December triggered the stock market’s steepest slide in 16 years. Discord within the government installed after a Sept. 19 coup led to Pridiyathorn Devakula quitting as finance minister a week ago.

“They would be looking at keeping things quite conventional with the new finance minister against capital controls,” said Irene Cheung, an economist at ABN Amro Bank NV in Singapore.

Stricter foreign investment rules endorsed by Cabinet in January were too broad and should be scrapped, said Chalongphob, 57. A former World Bank economist, Chalongphob was named Finance Minister by Prime Minister Surayud Chulanont on March 7, a week after the resignation of Pridiyathorn, the architect of proposed foreign investment law changes and supporter of currency controls.

Credit Quality

Credit-default swaps, used to speculate on a borrower’s ability to repay its debt, declined as perceptions of the nation’s creditworthiness improved. Five-year contracts based on $10 million of Thai debt fell 4.3 percent, the steepest drop in six weeks, according to data compiled by Bloomberg.

“Foreign investor confidence in the government’s policies has been weakened significantly,” Chalongphob said. “Any new policies should not harm” confidence further.”

Southeast Asia’s second-biggest economy expanded in the fourth quarter at the slowest pace in almost two years and may have deteriorated further after New Year bomb blasts in Bangkok, an escalation of terrorist attacks in southern provinces, slowing exports and political disagreements.

Chalongphob said rules to control capital inflows are “necessary, but we are still searching for the appropriate measure. The baht can weaken with an amendment to the current rule.”

Penalties

Those rules, which penalized investors withdrawing funds within a year, aimed to curb baht gains after exporters complained the currency’s 16 percent increase last year hurt sales and profits. The Bank of Thailand last week said it would lift most of the restrictions by March 15.

Chalongphob, previously head of the Thailand Development Research Institute, or TDRI, said the government should limit itself to beginning two mass rapid transit projects, down from five that had been previously planned to avoid burdening future governments with debt.

“I want to make sure the government has discipline in budget spending,” he said.

Policy Review

Deputy Prime Minister Kosit Panpiemras said today he would head a proposed committee comprising public and private agencies to review the overall economic policies with Chalongphob as his deputy.

“We have problems about confidence, so it is important we try to listen to public opinion and make sure we understand the same thing,” Kosit said.

Thailand’s consumer confidence has almost reached “crisis level,” said Thanavath Phonvichai, an economist at the University of the Thai Chamber of Commerce, which compiles the index.

“Consumers have held up spending and saved their money instead because of lower confidence in the economy,” said Apisak Tantivorawong, president of Krung Thai Bank Pcl. “The appointment of a new finance minister may help restore that confidence with new economic policies.”

Chalongphob, a member of the Bank of Thailand’s monetary policy board from 2000 to 2001, “has to be quick because confidence is very weak and the government has only six to seven months left,” Santi Vilassakdanont, chairman of Federation of Thai Industries, a trade group, said this week. “Consumers and businesses are very cautious in spending their money.”

Rate Cuts

The Bank of Thailand cut its key interest rate to 4.5 percent from 4.75 percent on Feb. 28, the same day Pridiyathorn resigned. That was the second reduction this year, and the bank said its rate is “still on a downward trend.” Central bank policy makers next meet to decide on interest rates on April 11.

The junta that staged the September coup ousting former Prime Minister Thaksin Shinawatra has pledged to hold elections by October.

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