Pridiyathorn Resigns, End of Capital Controls
By Jon Fernquest[Introduction | Vocabulary | Article | Reading Questions | Answers]
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The resignation of Finance Minister Pridiyathorn surprised many yesterday. His resignation was quickly followed by the lifting of the capital controls imposed last year. Pridiyathorn was the chief supporter of these controls. He apparently had no prior knowledge of their repeal. During a question and answer session yesterday, he appears to believe they will continue:
"I've always supported the central bank's 30% reserve requirement on capital inflows. The only problem is that there was not enough explanation to foreigners and investment brokers. But it's apparent now that the policy is helping exports. There's no export crisis ..." (Bangkok Post, 01-03-07, page 3)
Would there have been an export crisis if the capital controls had not been imposed? Capital controls, by imposing an extra condition on foreign investment, usually increase the cost of capital and reduce the supply. Were they worth the cost? Only the future will tell.
Pridiyathorn asserted that the influence of the media over the government has been too great and that it has undermined the effectiveness and credibility of the government. Apparently PM's Office Minister Thirapat Serirangsan acted "in a way beneficial to" media figure Sondhi Limthongkul which would technically be against the law (Bangkok Post, 01-03-07, page 12) and Pridiyathorn was attacked. When the mudslinging began and the government didn't support him, Pridiyathorn threw in the towel:
"Allowing a television broadcast [Sondhi Limthongkul's] doesn't mean you have submitted to improper influence. Rather, it's the way one demonstrates that one is ready to submit to a media outlet's influence. That minister in question is still working in cabinet. And if we're not careful, the influence will spread from one minister to the entire cabinet. That's why I had to come out and warn [of the danger] of such a television programme. First, I answered phone calls seeking my views [to counter accusations in the programme]. Later, I was criticised for helping the previous government. How's that possible? People began to ask whether I did ... The whole world may think I'm the odd man out because I was the only one being attacked [by the programme] and the government allowed this.""...Why would a person with little credibility who's being sued be allowed to have so much influence?..."
"To be frank there were lots of gestures making me believe that people are under too much influence from the press. The government should be above that. Any government which is seen to be under a person's influence risks being discredited by [opposing] groups. This is dangerous because a government must lead and be united." (Bangkok Post, 01-03-07, page 3)
When asked about his future plans at the end of the interview, Pridiyathorn states:
"I'll write a book to explain the facts [about his resignation] to people and I might do a newspaper column to prevent the facts from being twisted." (Bangkok Post, 01-03-07, page 3)
Today's Bangkok Post editorial finds that effective leadership is the real issue:
"In the eyes of the public and the media, the government's main problems concern its lack of direction and sense of mission, its absence of vision and lack of leadership on the part of the prime minister."
Which makes an article that appeared last October in the Bangkok Post written by Phliip Hallinger on the post-coup search for new Thai leadership even more relevant now.
Reading Questions
Here are some questions to guide your reading (See answers at end):1. What reason did Pridiyathorn give for his resignation?
2. What is the greatest challenge facing the country right now, according to Pridiyathorn?
3. What is necessary before financial markets improve, according to Pridiyathorn?
4. What is Pridiyathorn's work style?
5. What important work remains for the next finance minister?
6. Will capital controls be stopped completely?
7. How long did the capital controls remain in place?
8. What are the remaining capital controls that will be lifted?
Article
ECONOMY / REACTION TO SURPRISE RESIGNATIONPridiyathorn move reflects tension
Pressures exceeded personal patience POST REPORTERS"M.R. Pridiyathorn Devakula's surprise resignation from the government is a stark reminder that five months after the Sept 19 coup, political tensions remain as high as ever. Local and foreign business leaders, including critics of the government's policy flip-flops, expressed shock that the first departure from the Surayud Chulanont government would be its finance minister and key economic policymaker."
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"'I won't stand for the next elections nor take a government position,' he said. 'I spend 90% of my time with work, 10% in political co-ordination. But this job requires the opposite.'"
The Wharton School graduate and former central bank chief played down fears of an economic meltdown, and said politics was the greatest challenge facing the country at the moment.
"If the political situation improves, the financial markets will follow. Right now, politics is leading the economy, not the other way around," M.R. Pridiyathorn said...
"He's a workaholic who acts decisively and quickly." ...
Key tasks facing the next finance minister include pushing forward with the government's infrastructure megaprojects and accelerating fiscal spending to boost economic growth.
Reviving business and investor confidence will also be critical, as sentiment has nosedived due to policy uncertainties and security fears over the past months. Poorly communicated initiatives such as Foreign Business Act reforms, measures to protect the baht and the prosecution of corruption cases from the Thaksin Shinawatra government have further increased perceptions of heightened political risk under the current leadership...
But Vichit Suraphongchai, the executive chairman of Siam Commercial Bank, said a clear distinction should be made between politics and the economy. ..
Foreign capital controls 'to end today'
(Bangkok News, Breaking News, 03-01-07, 5:02am) (Agencies)Thailand will lift its remaining controls on capital inflows today, after the finance minister who was their chief supporter announced his resignation.
Bank of Thailand Governor Tarisa Watanagase told the Foreign Bankers' Association on Wednesday night that the controls would be lifted on Thursday, more than two months after the measures were introduced.
"Tomorrow (Thursday), the central bank will have a final review on the measures regarding capital inflows," she said.
"Fully hedged bonds, mutual funds and property funds will be exempted from the 30 percent reserve requirement."
Reserve requirements imposed in mid-December effectively lock up for a year 30 percent of any fund inflows coming into Thailand for financial investment.
The day after the announcement the Thai stock market nosedived 15 per cent, the biggest one-day drop by value in the 31-year history of the bourse, due to panic selling over the currency rules imposed to curb the Thai baht's rise.
The bank was forced to make an abrupt U-turn on some of the requirements, and eased others in the following weeks.
Tarisa's announcement that the remaining requirements would be lifted came just hours after Finance Minister Pridiyathorn Devakula announced his resignation.
Pridiyathorn had defended the reserve rules as a way of helping exporters by trying to weaken the baht, which has gained sharply against the dollar, making Thai products more expensive overseas.
Vocabulary (in discussion above)
the lifting of - stopping
had no prior knowledge of - he did not know before they happened
repeal - stop (same as "lifting")
a question and answer session - a meeting in which reporters ask questions, a newsconference
undermine - make less strong and secure than it was before
credibility - how much people still believe him
mudslinging - when politicians attack each other over and over again (without constraint, often with accusations that aren't true)
throw in the towel - give up, quit (in boxing a towel is thrown into the ring as a signal to stop the fight)
the odd man out - the one person who is not the same as other people
discredited - people no longer believe him
to twist the facts - distort the facts, to change the story in a way that supports you (pretending to tell the truth when you're actually not)
stark - harsh and unpleasant
a stark reminder - something that reminds you of an unpleasant fact (for example, the funeral was a stark reminder that she too would die)
political tensions - the possibility of sudden violent political conflict in the future
policy flip-flops - often and big changes in policy
lift controls - stop controls
capital inflows - investment money coming into the country
introduce measures - take action to solve a problem
final review on the measures - the last meeting they will have to discuss the measures
fully hedged bonds - bonds that are protected from the risk of exchange rate changes
lock up for a year - cannot take the money out of the country for one year
the stock market nosedived - the prices of stocks fell a lot (imagine diving into a swimming pool with your nose and head first, not your legs)
a bourse - a stockmarket
panic selling - fear of losing money causes people to sell
imposed - when a law or rule is made effective (the threat of enforcement gives this word a negative meaning)
curb - stop
reserve rules - the money that has to be kept as a deposit until the foreign investment has been held for a year (otherwise there is a 30% tax for early withdrawal), this keeps money from quickly entering and leaving the economy, wiping out exporters like a tsunami...
acknowledge - tell people what they believe about a situation is true
played down - say that it is not important
an economic meltdown - an economic crisis (like 1997) followed by recession
the other way around - the opposite
a workaholic - a person who works all the time, addicted to work
sentiment has nosedived - public opinion supporting the government has fallen a lot
Foreign Business Act reforms - changes to improve the Foreign Business Act
Answer Key:
1. What reason did Pridiyathorn give for his resignation?
Politics prevented him from doing the work that needs to be done.
("I spend 90% of my time with work, 10% in political co-ordination. But this job requires the opposite.")
2. What is the greatest challenge facing the country right now, according to Pridiyathorn?
Politics.
("...politics was the greatest challenge facing the country at the moment.")
3. What is necessary before financial markets improve, according to Pridiyathorn?
The political situation must improve.
("If the political situation improves, the financial markets will follow. Right now, politics is leading the economy, not the other way around")
4. What is Pridiyathorn's work style?
He "acts decisively and quickly."
5. What important work remains for the next finance minister?
a. The infrastructure megaprojects.
b. accelerating fiscal spending to boost economic growth
6. Will capital controls be stopped completely?
Yes.
("Thailand will lift its remaining controls on capital inflows today")
7. How long did the capital controls remain in place?
Capital controls that affected the stock market were lifted immediately
after the stock market collapsed. Others were lifted soon after.
("The day after the announcement the Thai stock market nosedived 15 per cent, the biggest one-day drop by value in the 31-year history of the bourse, due to panic selling over the currency rules imposed to curb the Thai baht's rise. ...The bank was forced to make an abrupt U-turn on some of the requirements, and eased others in the following weeks.")
8. What are the remaining capital controls that will be lifted?
("Fully hedged bonds, mutual funds and property funds will be exempted from the 30 percent reserve requirement.")
