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Thailand's man in the hot seat
By Shawn W Crispin
BANGKOK - Thai Finance Minister Pridiyathorn Devakula, until now widely
respected in international and domestic markets as a capable technocrat,
suddenly finds himself in Thailand's political hot seat.
The country's top finance official is widely viewed as the architect of the
Bank of Thailand's (BoT - central bank) disastrous capital-controls policy,
which, after its announcement on Tuesday, sent
the Stock Exchange of Thailand tumbling and raised hard questions about the new
military government's technocratic
competence among foreign and domestic investors alike.
Although the capital controls, which required investors to set aside 30% of
their outlays in stocks, bonds and currency in an interest-free reserve account
for one year, were originally promulgated by the BoT, Pridiyathorn unilaterally
reversed the policy for equity transactions after the bourse recorded its
biggest single-day decline ever, plunging nearly 15% and shedding 820 billion
baht (US$23 billion) worth of paper wealth off the bourse.
The market regained most of those losses on Pridiyathorn's policy U-turn for
equity investments, picking up more than 11% on Wednesday as many institutional
investors restored their market positions. But the restrictive capital controls
still in place on currency and bond transactions could result in Thailand being
dropped from various indexed investment funds and has substantially raised the
risk premium on Thai equities.
Thai investment bank Phatra Securities said in a scathing research note, "The
Thai government can expect Thai investors to complain or even file charges for
the damages they suffered, and politically this is a negative for the
government and the finance minister, who earlier praised the measures."
The financial fiasco and subsequent investor outcry are exactly the sort of
economic turbulence Thailand's new military-appointed leaders had hoped to
avoid after seizing power in a September 19 putsch from prime minister Thaksin
Shinawatra's pro-business government. The junta specifically aimed to preempt
investor jitters that the economy would be run by incompetent soldiers through
the appointment of the respected BoT governor Pridiyathorn as both finance
minister and deputy prime minister in charge of economic affairs.
A former private-sector banker educated at the United States' elite Wharton
business school, Pridiyathorn had after a shaky start developed a strong
reputation in international markets for his staunch independence while serving
as central-bank governor under Thaksin's administration. He is best known for
putting a brake on Thaksin's fast and loose pump-priming financial policies,
and forced the ouster of the head of the country's largest state bank, Krung
Thai Bank, which Thaksin's government allegedly used to extend politically
motivated lending.
That tough stand put Pridiyathorn on a collision course with
economic-growth-obsessed Thaksin, but won the governor high marks among
sovereign-credit analysts and foreign investors who were concerned that the
government's rapid accumulation of off-balance-sheet liabilities was building
up potentially dangerous distortions in the economy.
It also became a badge of honor among the anti-government forces that conspired
to oust Thaksin in a military coup. The royalist military leaders even toyed
with the idea of appointing Pridiyathorn - himself a minor royal - to the
premiership to maintain investor confidence in the economy while they
orchestrated political reforms.
International credit-rating agencies Standard & Poor's and Fitch Ratings
provisionally placed Thailand on a so-called "rating watch negative" list
directly after the coup, but both agencies retracted their alarm after
Pridiyathorn was put in charge of the finance portfolio. Three months later,
even the usually tight-lipped International Monetary Fund publicly criticized
Pridiyathorn's capital-controls experiment to curb the appreciating baht.
Concentrated power
Ironically, Pridiyathorn's overarching influence over the government's economic
levers has engendered new questions about central-bank independence from the
Finance Ministry, a reform issue he fought vigorously to implement during his
tenure as BoT governor.
New central bank chief Tarisa Watanagase, a former deputy, was traveling
upcountry and was unavailable for comment on Tuesday when the stock market
melted down and Pridiyathorn unilaterally rescinded the use of capital controls
for stock-market transactions. When the policy was first announced on Monday,
Pridiyathorn referred to the measures to curtail rapid short-term capital flows
as "historic".
Those comments and the policy flip-flop have put Pridiyathorn's technocratic
credentials under tough new scrutiny. Although he is best known for asserting
central-bank independence in his stand against Thaksin, his early days as BoT
governor were similarly controversial and often put him at odds with the
international investment community.
On his appointment to the governorship in 2001, Pridiyathorn, who
competence among foreign and domestic investors alike.
