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Tue, Mar 26, 2002 - Page 19 News List

Thaksin no brain on economics

By David DeRosa  /  BLOOMBERG , NEW CANAAN, CONNECTICUT

The IMF published a report on Thursday saying the near-term economic outlook for Thailand "remains weak" but inflation is subdued. The report says many of the IMF directors welcomed the recent easing of the monetary stance and "saw room for further interest rate cuts."

The Thai central bank has warmed to the idea of future rate cuts. The Bank of Thailand cut its benchmark 14-day repurchase rate to 2.25 percent from 2.50 percent on Dec. 25.

So far so good, you might say. What is controversial about this? You might ask a gentleman named Chatumongkol Sonakul, who used to be the governor of the Bank of Thailand. That is until last May when Prime Minister Thaksin Shinawatra fired him.

Thaksin gave Chatumongkol the axe, figuratively speaking, for refusing to raise the interest rate.

This was a unique inversion of nature -- normally politicians protest interest rate hikes, not the other way around.

At the time, Thaksin had some crazy idea that a higher interest rate would generate income for savers and spur on domestic demand. Never mind the clear risk of dampening investments.

Thaksin found a man more to his liking in the current occupant of the governor's suite -- Pridiyathorn Devakula.

Devakula immediately put in an increase of 100 basis points, taking the benchmark rate from 1.5 percent to 2.5 percent. That was where the rate remained until Christmas Day.

What is abundantly clear now is that Thaksin was all wet in wanting to raise the rate in the first place. After firing Chatumongkol and installing Devakula, Thaksin went on the public relations offensive. On June 18 he promised his countrymen "economic growth will pick up and return to the normal level when all government measure begin to take effect from the fourth quarter."

It didn't happen. In fact the IMF forecasts that the final numbers will show that real GDP for last year will have grown annually only 1.5 percent, down from 4.4 percent in 2000.

By my way of thinking, Thaksin owes Chatumongkol an apology.

He should also apologize to the people of Thailand for interjecting himself in the affairs of the central bank, an institution that he little understands. Even if he doesn't grasp economics, he should at least comprehend the importance of central bank independence.

Meanwhile, Thaksin Thursday delivered a stirring address at the International Conference on Financing Development at Monterrey, Mexico.

One of the many pearls of economic wisdom Thaksin cast before the conference was that there was a need for "NYSE" (New York Stock Exchange) style time-out for "short circuit" (sic) for international capital flows.

Get over it man. Locking the investors in place is like blocking the door of a burning hotel so the guests cannot flee.

And once you announce that the doors could be locked in an emergency suddenly you will find there are no guests to check in to the hotel.

Any way you look at it, economics isn't the prime minister's strong suit.

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