VZCZCXYZ0000
RR RUEHWEB
DE RUEHBK #1399/01 0680223
ZNR UUUUU ZZH
R 090223Z MAR 07
FM AMEMBASSY BANGKOK
TO RUEHC/SECSTATE WASHDC 5403
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASH DC
UNCLAS BANGKOK 001399
SIPDIS
SENSITIVE
SIPDIS
STATE FOR EAP/MLS AND EB
COMMERCE FOR EAP/MAC/OKSA
TREASURY FOR OASIA
STATE PASS TO USTR FOR WEISEL
STATE PASS TO FEDERAL RESERVE SAN FRANCISCO FOR DAN FINEMAN
STATE PASS FEDERAL RESERVE NEW YORK FOR MATT HILDEBRANDT
E.O. 12958: N/A
TAGS: ECON PGOV PHUM PREL TH
SUBJECT: THAILAND'S NEWLY APPOINTED MINISTER OF FINANCE
SENSITIVE BUT UNCLASSIFIED HANDLE ACCORDINGLY
1. (SBU) Summary. In a meeting with visiting Regional Finatt and
Econoff, Dr. Chalongphob Sussangkarn, President of economic
think-tank Thailand Development Research Institute (TDRI) and newly
appointed Minister of Finance, said that his priorities in office
would be to strengthen the monetary and fiscal systems in Thailand
and improve investor confidence, particularly foreign investor
confidence. He opined that the imposition of capital controls was
too broad, but implied that more targeted controls could be a tool
to help middle-income countries deal with the large inflows of
capital they are experiencing. He said he opposes the proposed
amendments to the Foreign Business Act and will voice his opposition
to them in cabinet although it is an issue that lies outside his
portfolio. Chalongphob stated his key priorities as being monetary
and fiscal reform to reduce opportunities for corruption and better
assure sustainable development of the economy. End Summary.
Restoring Thailand's "foreign friendly" reputation
--------------------------------------------- -----
2. (SBU) Dr. Chalongphob said the previous finance minister had
created an "anti-foreigner" perception which he hoped to reverse. He
asserted that Thailand's main comparative advantage in the region
was that it was "foreign friendly" due to its lack of a colonial
history and therefore had "no fear" of foreign influences or need to
favor one foreign group over another. This advantage, he implied,
was being lost through recent policies pursued by the present
government.
3. (SBU) With regard to the Foreign Business Act (FBA) changes,
Chalongphob said it was too broad to address the "gaps" in the
telecom sector where the real problems were selling "monopoly"
assets inappropriately. While he said he does not have direct
responsibility for telecoms or the FBA, he promised that he would be
"a voice in the cabinet" arguing against excessively anti-foreign
investment measures.
4. (SBU) On capital controls, Dr. Chalongphob reiterated the views
published by TDRI that the measure was too broad an instrument to
address the capital inflow problems. He lamented the lack of
monetary policy experience of BoT Governor Tarisa, pointing out that
"she is a regulator" and "still learning about monetary policy." He
noted that countries do need capital controls, but that there are
"no clear answers" nor "one easy solution." He stated that most
important are to not create a "major shock" and for the solution to
be "appropriate." He noted that many middle income countries are
searching for a solution on how to deal with strong foreign inflows.
5. (SBU) Chalongphob related that at a recent academic conference
in Madrid where he presented, non-Asian countries such as Turkey
were inquiring about Thailand's experience with capital controls.
He was not optimistic, however, that either the ASEAN Plus3 Finance
Ministers or the EMEAP central bankers group showed enough promise
of coordination to be used as effective tools for pressuring China
(or Japan) to have more flexible currencies. In previous discussions
with Econoff, Dr. Chalongphob has said that he believes some form of
capital controls are necessary and proposed a form of capital gains
tax on profits earned from foreign inflows.
6. (SBU) Finatt emphasized the importance of improving
communication with market participants to prepare them for changes
such as capital controls and to ensure that the broadest range of
policy options had been considered appropriately before such
draconian measures are adopted. He agreed that "managing market
psychology" was something that needed improvement, particularly
cited BoT language last November and December that led to the
perception of a "one-way bet" on the Baht that exacerbated the
appreciation of the currency.
Priority to put in place good systems for economic policy
--------------------------------------------- ------
7. (SBU) Dr. Chalongphob identified his first priority as
"improving the system of monetary and fiscal policies" in Thailand.
He particularly highlighted the need to close "loopholes" on
megaprojects to ensure that the laws and regulations regarding
careful evaluation were followed properly so as to avoid abuse.
While noting the importance of public private partnership, he
thought that transparency of the contingent liabilities embedded in
these projects was important to prevent their abuse by "populist
policies." He noted that only with more transparent data could an
"early warning system" be developed to address inappropriate risks.
Dr. Chalongphob did not respond to a question from Econoff about
whether this would include addressing the contingent liabilities of
the state financial institutions, such as the government's housing
bank.
The politics of prioritization and perceptions of conflicts
--------------------------------------------- ----
8. (SBU) Dr. Chalongphob acknowledged the back up of proposed
legislation at the Council of State due to the many pet projects of
various ministries trying to pass laws during the period of the
interim government. Chalongphob said that he would be working with
Deputy Prime Minister for Economy (excepting finance) Kosit to
prioritize the various proposed laws; acknowledging that there seems
to be no prioritization currently. While mainly focusing on the
fiscal side, he said he would want to review the Bank of Thailand
Act --- that would improve the independence of the central bank ---
to ensure that he could support it and justify it to parliament in
the future. Note: The previous finance minister who approved the
BoT Act had served as its governor as well, which may have created
some perception of potential bias. DPM Kosit hails from Bangkok
Bank, one of Thailand's top private banks, and will have to tread
carefully to avoid conflicts of interest. Kosit's background - and
presumed desire to return to the banking industry - explains why
finance was excluded from his portfolio and why Dr. Chalongphob will
report directly to the Prime Minister rather than through Kosit like
the other economic ministers. End Note.
Less focus on pushing bureaucracy to disperse fiscal stimulus
--------------------------------------------- -
9. (SBU) Embassy contacts have recently emphasized the importance
of rapid disbursement of this year's government budget to stimulate
the moribund domestic economy. They note that one year's budget must
be disbursed in only 9 months since the budget was passed three
months late and that bureaucrats are proving reluctant to push
things along for fear of punishment if a later government finds any
suggestion that the rules for disbursement were not stringently
adhered to. The fiscal stimulus is seen as particularly important
for economic growth given weak consumer and investor confidence and
pressure on exports from the stronger currency. In response to our
question about this problem, Chalongphob simply said the bureaucrats
would do their job.
10. (SBU) Comment: Dr. Chalongphob seems to be a well-meaning
academic with the best of intentions for developing better systems
for future economic policy management. However, he has never worked
in government (or the private sector) and may not have the political
and bureaucratic skills to push through things vital for short term
economic growth such as fiscal spending on mega-projects. He does
seem intent on reversing anti-foreign sentiment and taking a more
sympathetic position on the concerns of foreign investors; but how
the large nationalist grouping in cabinet will react to this is
uncertain. The role and influence of Deputy Prime Minister Kosit
versus that of the new Finance Minister will also have to be
carefully monitored. With the departure of Pridiyathorn as economic
czar, the new chief policy-maker job would seem to be open. We hope
that Chalongphob's investor-friendly views prevail. He
Boyce