In its yearly update on Monetary Policy Transparency in Thailand, Oxford Analytica (OA) stated that Thailand's overall score of "Compliance in Progress" remained unchanged from 2005. As a subscriber to the International Monetary fund's (IMF) Special Data Dissemination Standard (SDDS), Thailand conforms to the requirements for coverage, periodicity, and timeliness of monetary data and makes a wide range of such data available to the public. A new Bank of Thailand (BoT) Act to replace the 1942 original had been stalled in the Legislature since it was first drafted in the wake of the 1997/98 Asian Financial Crisis. It achieved passage through Thailand's National Legislative Assembly (NLA) and entered into force on March 3, 2008. The new BoT Act will strengthen the independence of the BoT and formalize institutional procedures, including the terms of office and accountability of the governor and the Monetary Policy Committee. The NLA has already passed the Financial Institutions Business Act, making the BoT fully accountable for banking supervision. The BoT will be the sole banking trouble-shooter. No full report of the yearly Article IV Consultations between the IMF and Thailand has yet been published. In the abbreviated version, the Public Information Notice to the 2006 Article IV Consultation with Thailand, IMF Directors applauded the BoT's commitment to a market-determined exchange rate despite rising capital inflows and a strong appreciation of the baht, which should help absorb balance of payments shocks in the future. The IMF did not consider the economy likely to become uncompetitive due to the appreciating currency, since exports have performed well.

General Overview

In December 2006, Oxford Analytica (OA) published its yearly update on Monetary Policy Transparency in Thailand. It noted that the Bank of Thailand (BoT) had continued its commitment to monetary transparency, but that few tangible results were achieved during the period under review. This is mainly due to the continued delay of the new Bank of Thailand Bill, which was stalled in the legislature since it was first drafted in the wake of the Asian Financial Crisis. It is intended to replace the 1942 BoT Act, and will strengthen the independence of the BoT and formalize institutional procedures, including the terms of office and accountability of the governor and the Monetary Policy Committee (MPC). In September 2006, it was resubmitted by the BoT to the military government as part of a package with the Financial Institutions Business Act, the Currency Act, and the Deposit Insurance Agency Bill. According to the International Financial Law Review, Thailand's National Legislative Assembly (NLA), appointed by the military government in September 2006, had approved the four bills in principle. As of December 2007, according to Thomson Dialog NewsEdge report, the appointed NLA was pushing to pass the new BoT Act before elections due before the end of 2007. It had already passed the Financial Institutions Act, making the BoT fully accountable for banking supervision. The BoT will be the sole banking trouble-shooter. Various news outlets have since reported that the new Bank of Thailand Act entered into force on March 3, 2008.

On another positive note, OA lauded the appointment of Pridiyathorn Devakula as BoT governor in 2006, asserting that he is known for his pro-transparency and professional stance. The pending Deposit Insurance Act will limit the blanket government guarantee on deposits going forward, with each account guaranteed for up to 50 million baht (US$1.4 million), reducing to a cap of one million baht (US$28,100) by year four. The Act will also establish a Deposit Insurance Agency. The Thai Asset Management Corporation (TAMC), created in the aftermath of the Asian Financial Crisis to restructure debt cases and recover assets, announced in 2006 that, after five years of operation, it had resolved all its outstanding cases.

The International Monetary Fund (IMF), in its 2006 Report on the Observance of Standards and Codes (ROSC) Data Module, mentions that Thailand became a subscriber to the IMF's Special Data Dissemination Standard (SDDS) in August 1996 and started posting its metadata on the SDDS website in September 1996. The report also states that Thailand is in observance of SDDS requirements on coverage, periodicity, timeliness, and the dissemination of advance release calendars. According to the 2006 ROSC "Thailand possesses a well-developed macroeconomic statistical system, with many strengths" (p. 4) and the government of Thailand is clearly aware of the benefits of good statistics for sound decision making.

No full report of any of the yearly Article IV Consultations between the IMF and Thailand has been published as of December 2007. In the abbreviated version, the Public Information Notice (PIN) to the IMF's 2006 Article IV Consultation, the Fund Directors applauded the BoT's commitment to a market-determined exchange rate, despite rising capital inflows and a strong appreciation of the baht, which should help absorb balance of payments shocks in the future. The Directors did not consider the economy likely to become uncompetitive due to the appreciating currency, since exports have performed well. The baht has appreciated by about 14 percent vis-à-vis the U.S. dollar since end-2005, driven by the continuing strength of capital inflows and by the current account recovery. By end-2006, international reserves had climbed to US$67 billion, or 221 percent of short-term debt. In order to deal with the recent surge in capital inflows, some IMF Directors believed that conventional tools -- such as foreign exchange intervention, interest rate cuts, and liberalization of capital outflows -- had failed to curb the inflows, but others saw room for a more efficient application of these tools. Short-term capital was seen as a possible solution to excessive exchange rate volatility and its destabilizing effects. Since its peak in May 2006, inflation has been declining steadily and headline has since moderated to 3.5 percent. Core inflation has now fallen to 1.5 percent, well within the 0-3.5 percent target band of the Bank of Thailand.

The Principles

Clarity of roles, responsibilities and objectives of central banks.

CP

OA, in its 2006 Report on Monetary Policy Transparency in Thailand, rates Thailand's compliance with this principle as "Compliance in Progress." The Bank of Thailand Act of 1942 and accompanying Royal Decree of the same year authorize the BoT to carry out its functions such as issuing bank notes, establishing a Financial Institutions Development Fund (FIDF) to enhance stability and support development of the financial system, setting interest rates, and extending secured loans to government, all under the general supervision of the Ministry of Finance. The BoT has three main functions: formulating monetary policy; supervising and examining financial institutions; and maintaining a payment system and issuing bank notes. Its organizational structure is set up accordingly. A new BoT Act, drafted in the wake of the Asian Financial Crisis, and having been stalled in the legislative process, was finally passed by Thailand's NLA and entered into force on March 3, 2008. It is expected to strengthen the independence of the BoT and formalize institutional procedures, including the terms of office and accountability of the governor and the Monetary Policy Committee.

According to the OA report, a "chief objective of the reforms is to boost the credibility of the BoT as the key monetary institution by reinforcing its political neutrality" (p. 403). Even though the Ministry of Finance is responsible for the general supervision of the BoT, the administration of the central bank remains under the direction of the Court of Directors. The Court of Directors exercises general control and superintendence of central bank affairs, and consists of the governor, three deputy governors, and at least five outside directors of appropriate professional background. Monetary policy is steered by the MPC, consisting of three internal members, namely the governor and two deputy governors and four external members with financial and macroeconomic expertise. OA expects the new Bank of Thailand Act to revoke the Finance Minister's power to appoint and dismiss central bank governors, and to limit the governor tenure to three five-year terms.

In its 2006 report, OA asserts that, over the last few years, the "BoT has sought to project a more neutral profile while conforming to the thrust of government policies" (p. 404). While it naturally considers government policies in MPC deliberations, it does not tolerate political interference. The politicization of monetary affairs, the lack of a clear distinction between monetary and fiscal policies, and non-transparent terms of BoT lending to the government, as well as unclear terms of its function as a lender of last resort, had been major problems during the 1997-98 financial crisis. While many of these issues have since been sorted out according to the 2006 OA report, the BoT draft Act is intended to add additional restrictions on lending to the government.

Open process for formulating and reporting monetary policy decisions.

CP

The 2006 OA Report on Monetary Policy Transparency in Thailand, rates its compliance with this principle as "Compliance in Progress." Since August 2000 the BoT operates with an explicit inflation targeting as the main objective of monetary policy. The main policy instrument until January 2007 was fourteen-day repurchase rate, while the target is the quarterly average of core inflation. In January 2007, the BoT switched its key instrument to an overnight repurchase rate. According to OA, the purpose of this move was to reduce the differential between the overnight and policy rates and thereby improve the dissemination of monetary policy to the money markets.

The MPC meets every six weeks, following a pre-announced schedule. With regard to communication, OA reports that the BoT hosts a press conference after every policy review and is required to explain publicly when targets are missed. The BoT website contains an advance calendar for the release of macroeconomic data. The BoT publishes a monthly report on economic and monetary conditions, a quarterly Inflation report and a Quarterly Economic Assessment and Outlook. Macroeconomic data is available through a variety of government websites.

Public availability of information on monetary policy.

FC

OA rates Thailand's compliance with this principle in its 2006 report as "Full Compliance." Thailand became a subscriber to the IMF's SDDS in August 1996 and started posting its metadata on the IMF's SDDS website in September 1996. The 2006 IMF ROSC states that Thailand is in observance of SDDS requirements on coverage, periodicity, timeliness, and the dissemination of advance release calendars. According to the 2006 ROSC "Thailand possesses a well-developed macroeconomic statistical system, with many strengths" (p. 4) and the government of Thailand is clearly aware of the benefits of good statistics for sound decision making.

Data compiled by the BoT include central government debt; balance of payments; analytical accounts of the banking sector; analytical accounts of the central bank; interest rates data; and exchange rates, reports OA. The BoT databank also includes the central bank's preliminary statistics, final quarterly Economic and Financial Statistics, and links to statistics from other agencies, such as the quarterly GDP figures and the consumer price index (CPI). OA notes that the 'Codes of Statistical Practice for the Bank of Thailand' is being implemented as a guideline to enhance quality and effectiveness of data providing responsibility.

Accountability and assurances of integrity by the central bank.

EN

OA, in its 2006 Report on Monetary Policy Transparency in Thailand, rates Thailand's compliance with this principle as "Enacted". The cabinet is getting regularly briefed by either the BoT governor or his deputies on specific monetary issues, depending on the importance of the issue. Senior BoT officials also appear in parliament by invitation, but there is no formal reporting requirement. The BoT publishes weekly reports in the Government Gazette and on its website regarding its financial status and an annual financial statement in order to comply with statutory requirements.

The Annual Economic Report contains details on the BoT's operating costs and revenues, in compliance with international accounting standards, according to the 2006 OA report. An internal and external audit is carried out at three separate levels. OA explains that "all accounts are audited by the BoT's Internal Audit Group and the independent BoT Audit Committee, and then submitted to the Office of the Auditor General (OAG)" (p. 410). Section 19 of the original BoT Act lays out the terms under which the Governor and his deputies may be appointed and removed from office. OA reports that the previous governor, M.R. Chatu Mongol Sonakul, is generally believed to have been forced from office by allies of the then prime minister. "In order to allay this concern, it is expected that the BoT will incorporate safeguards from political interference into the draft of the new BoT Act. If these are adopted, either the parliament or a panel of 'wise men' drawn from leaders of the public and private sectors are in future likely to select the BoT Governor" (p. 411).