We need a steady hand at BoT helm

The announcement naming Veerathai Santiprabhob as the next governor of the Bank of Thailand last week came as no surprise. In addition to his exceptional credentials, the 45-year-old economist with a PhD from Harvard was a clear choice over the other short-listed candidate, Supavud Saicheua, the managing director of Phatra Securities, because he has earned the trust of the current government under the leadership of Gen Prayut Chan-o-cha. The Ivy League graduate and former International Monetary Fund economist has also received the blessing of Prasarn Trairatvorakul, who he will replace from the start of October. Mr Prasarn has described Mr Veerathai as a man with morality and qualifications. But despite the expertise and praise, Mr Veerathai is not guaranteed an easy path. He will have to prove he is the right man to preside over one of the most respected institutions in Thailand.

Mr Veerathai will take the helm of the central bank at a time when the Thai economy is still struggling to achieve the 3% economic growth estimate. Thai exports, meanwhile, are barely rising despite the baht’s pullback due to a slump in global demand.

There is also a changing expectation of the central bank’s role. The public and decision-makers do not expect the bank to solely guard against monetary instability.

Exporters have, for instance, urged the central bank to take into account other factors such as the competitive pricing edge of Thai products as the Thai economy relies heavily on external trade, with the export sector driving economic growth.

The central bank is also ready to assume the additional responsibility of supervising the government’s specialised financial institutions and nano-finance scheme, which is a politically-driven product of the current government.

The new governor will have to balance that political goal with prudent policy implementation to provide a conducive environment so financial markets can ensure sustainable growth.

Meanwhile, Thai commercial banks have been criticised for acting too slow to follow the central bank’s interest rate guidelines, especially when the bank announces rate cuts. At times, the margin between the borrowing rate and the deposit rate the commercial banks charged its clients was too wide, at the customers’ expense.

External factors are also very challenging. Greece’s possible exit from the eurozone could unleash shock waves throughout Europe and have global repercussions.

Closer to home, the recent crash in the Chinese stock market aroused concerns over whether it marks the beginning of regional economic woes. The Thai economy has increasingly relied on the Chinese market in recent years. If China experiences economic trouble, it will certainly have a deep impact on Thailand, not to mention the entire Asean region.

As things now stand, the Bank of Thailand does not have much room to manoeuvre when it comes to its monetary weapons or interest rates. The current policy rate of 1.5% is already low, making it harder for the central bank to further cut rates to make the baht cheaper and boost export competitiveness.

The task is challenging since any government measures its economic success by short-term GDP growth, while the central bank would have to have a priority on economic stability.

Thais, meanwhile, have seen a rise in household debt and become more addicted to populist policies and easy money. Thais in general have yet to adequately embrace saving habits, a pressing concern as the country heads towards becoming an ageing society. Trade liberalisation in anticipation of the Asean Economic Community will make the domestic market more vulnerable to regional and global markets.

The central bank chief will face the task of balancing external factors — namely lower global demand — with internal factors to ensure prices rise at appropriate levels to ensure a sustainable economy.

Also, the governor must set up the right infrastructure to create a proper immunity for Thailand’s financial and monetary system.

Mr Veerathai is believed to have the political backing of Gen Prayut’s economic team, namely MR Pridiyathorn Devakula and Somkid Jatusripitak. Mr Veerathai has earned the trust of the current government. He is an appointed member of a “super board” overseeing state enterprises.

The irony for Mr Veerathai is that he has to prove he would maintain the central bank’s independence and integrity, despite the backing he receives from the government.

It remains to be seen if Mr Veerathai will be able to use his youthfulness, talent and experience to maintain the independence and integrity of the Bank of Thailand.

The task is challenging since governments measure economic success in the short term, while the central bank’s priority must be stability