1-7-204 (BANGKOK) Thailand’s central bank governor, Sethaput Suthiwartnarueput, remains steadfast in his commitment to maintaining the institution’s independence and credibility. The 59-year-old former World Bank economist and Yale University alumnus has found himself embroiled in a tug-of-war with the incumbent government, which is lobbying for lower interest rates to jumpstart the nation’s sluggish economy.
Sethaput, who was appointed by a previous administration in 2020, has found himself at odds with Prime Minister Srettha Thavisin and his Pheu Thai party over the appropriate course of action to tackle Southeast Asia’s second-biggest economy. With growth lagging behind its neighbors at below 2% over the past decade, and household debt reaching alarming levels, the government faces immense pressure to deliver on its promises of economic revival.
In a recent survey, more than half of Thais polled expressed dissatisfaction with the prime minister’s performance, adding to the mounting political turmoil that could potentially lead to Srettha’s ouster. Investors have grown jittery as a snowballing crisis threatens to unravel a deal that would allow the influential former leader Thaksin Shinawatra to return from exile.
Amidst this turbulent landscape, Srettha’s administration is targeting an ambitious 3% growth rate for the current year, underpinned by an influx of foreign tourists and accelerated government spending. Their sights are set even higher, aiming for a 5% growth rate during their four-year term. To achieve this, the government has called upon the Bank of Thailand (BOT) to cut interest rates from the decade-high of 2.5% and raise its inflation target, currently among the lowest in the world at 1% to 3%.
The premier has accused the BOT of hampering economic growth through its rate hikes of 200 basis points between August 2022 and September 2023. Paetongtarn Shinawatra, the ruling party chief, has gone so far as to label the central bank’s autonomy as an “obstacle” to resolving Thailand’s economic woes.
Critics argue that the central bank’s overly cautious approach has resulted in monetary policy being “too tight,” with the BOT failing to meet its inflation target more often than overshooting it in recent years. Supavud Saicheua, an advisor to Kiatnakin Phatra Financial Group and a former advisor to Pheu Thai, asserted that “if you are too scared of high inflation until growth is stagnant, then the economy will have a hard landing in the event of an unexpected crisis.”
However, the BOT has resisted these demands, contending that the economy is already gaining momentum. The International Monetary Fund (IMF) has also endorsed the central bank’s policy stance as appropriate for the prevailing economic and financial conditions. Sethaput has called for long-term structural reforms, increased investment, streamlining of business regulations, and more free-trade pacts to ignite Thailand’s growth engine. A joint review of the inflation goal by the central bank and the finance ministry is scheduled for August and September.
As tensions simmer, Sethaput has advised the bank’s top leadership not to take the political spat personally, though he acknowledges the difficulty in getting the rank-and-file to embrace this message, given the intense media coverage of the differences between the BOT and the government.
Srettha’s administration is reportedly considering ways to exert more control over the central bank, including installing a government nominee as its chairman and influencing the selection of Sethaput’s successor when his term ends next year.
Challenges to central bank independence are not unique to Thailand, with the issue emerging as a US election campaign topic and Brazil’s President Luiz Inacio Lula da Silva pledging to appoint a new central bank chief focused on both inflation and growth.
Sethaput, who has spent a decade at the BOT and served as an advisor to the previous military-led government, remains unfazed. He believes the bank will maintain its autonomy as long as the 2008 law guaranteeing its independence remains intact, making it difficult to dismiss a governor.
Protecting the BOT’s credibility, severely damaged during the 1997 Asian Financial Crisis when Thailand was forced to seek an IMF bailout, is paramount. “Trust and credibility are something that we often take for granted,” Sethaput told the bank’s in-house magazine. “It can go away very quickly when something bad happens, and it takes a lot of effort and time to restore it back. That’s a lesson from the 1997 crisis.”
The BOT’s rate panel stands ready to recalibrate its policy stance as required, Sethaput asserted, quoting hockey legend Wayne Gretzky: “You have to skate to where the puck is going to be. Not where it’s been.”
Amid the ongoing dispute, Sethaput finds solace in the support from some members of the public, who have sent letters expressing gratitude to the BOT for “trying to do the right thing.” In his office, a Post-It note bearing the words “It’s Not About You” serves as a reminder to maintain perspective and focus on the task at hand – guiding the nation’s monetary policy through turbulent times while safeguarding the central bank’s independence and credibility.
