After postponing a decision twice on selecting the new chairperson of the Bank of Thailand (BOT) board of directors, the selection committee will meet today to choose from three candidates: former finance minister Kittiratt Na-Ranong, former permanent secretary of the Energy Ministry Kulit Sombatsiri, and Prof. Surapol Nitikraipot, president of the Thammasat University Council.
There is speculation that Kittiratt, the government’s nominee, will be chosen, but his candidacy has sparked strong opposition from academics, economists, and former central bank governors. Kittiratt, who served as finance minister and deputy prime minister during the Yingluck Shinawatra government, is a loyalist of the Pheu Thai Party and a vocal critic of the current BOT governor, Sethaput Suthiwartnarueput.
Over 800 academics, economists, and former BOT officials have issued a joint statement condemning Kittiratt’s appointment, expressing concerns about potential political interference in monetary policy. “We are deeply concerned about the implications of political intervention on monetary policy, as the government’s short-term focus could seriously undermine long-term stability and economic growth,” the statement read.
Praipol Koomsup, former dean of the Faculty of Economics at Thammasat University, explained that Kittiratt’s background as a politician makes him an inappropriate choice. “It is not suitable to appoint him,” Praipol said, underscoring the importance of keeping political figures out of key economic decision-making positions.
A Threat to the BOT’s Independence?
The main concern of critics is that Kittiratt’s appointment could jeopardize the independence of the central bank. Economists argue that the autonomy of the BOT is essential for maintaining economic stability in the long term. Research consistently shows that an independent central bank is associated with lower inflation and greater price stability. In contrast, governments with more direct control over central banks often struggle to prevent currency devaluation and uncontrolled inflation.
This issue of central bank independence is not unique to Thailand. For example, in the United States, former president Donald Trump raised concerns about his potential influence over the U.S. Federal Reserve. During his campaign, Trump expressed intentions to lower inflation and interest rates, and after taking office, his comments led to speculation about his willingness to challenge the Fed’s decisions. Federal Reserve Chairman Jerome Powell famously declared that he would not resign under pressure from Trump, highlighting the importance of central bank independence even in the face of political pressure.
As Praipol Koomsup put it, “Governments tend to prioritize short-term economic boosts, while central banks focus on long-term stability. These conflicting goals can lead to tensions between elected officials and central bankers.”
The Evolution of the BOT
Dr. Puey Ungphakorn, who served as BOT governor from 1959 to 1971, is regarded as the founding father of modern Thai economic policy. Under his leadership, the BOT helped transform Thailand from an agrarian economy into a more industrialized and service-oriented economy. However, the path to an independent and stable central bank has not been without its challenges.
The 1997 financial crisis was a pivotal moment in Thailand’s economic history. The crisis, caused in part by government interference in monetary policy, led to the collapse of the baht and a widespread economic downturn. Following the crisis, Thailand implemented major financial reforms, including changes to the BOT’s structure, to protect it from political influence. The reforms made it more difficult for the government to dismiss the BOT governor, requiring proof of serious misconduct and Cabinet approval for any dismissal.
The Role of the BOT Chairperson
The chairperson of the BOT does not directly influence monetary policy, which is the responsibility of the governor. However, the chairperson does play an important role in appointing members to the seven-member Monetary Policy Committee (MPC), which sets key interest rates. The chairperson is also involved in selecting the next governor when Sethaput’s term ends in September next year. Therefore, the chairperson can indirectly influence monetary policy through appointments to the MPC and the selection of the governor.
The appointment of the new chairperson must be approved by the finance minister and the Cabinet.
The Root Cause of the Conflict
The government and the BOT have been at odds over monetary policy, particularly interest rates. While the BOT recently lowered its key interest rate by 25 basis points to 2.25%, the government has called for further cuts to stimulate consumption and alleviate household debt burdens.
Supavud Saicheua, adviser to Prime Minister Paetongtarn Shinawatra, argued that the current inflation rate was too low, and criticized the BOT for not doing enough to boost economic activity. In contrast, Sethaput has emphasized that interest rate cuts cannot solve structural issues in the economy, such as the declining competitiveness of local industries, which are contributing to slower growth.
Additionally, there are concerns that the government may want to access the BOT’s significant foreign reserves—around $238.6 billion as of October—potentially to fund a sovereign wealth fund. While such funds could generate high returns, they also carry risks and have led to controversy in other countries. For instance, Malaysia’s sovereign wealth fund has been linked to corruption scandals, while funds in countries like Singapore and Norway have been successfully managed.
The debate surrounding Kittiratt’s candidacy for the BOT chairmanship is thus part of a broader conflict between the government’s desire for more short-term economic stimulus and the BOT’s focus on long-term stability.
