Exchange rates are too important a price
to leave to financial markets (Dani Roderick)

In response to a Wall Street Journal piece that argues that the real reason for capital account liberalisation is "financial market development."

Foreign investment in the financial sector tends to enhance competition, raise efficiency, improve corporate governance standards and stimulate the development of new financial products.

Dani Rodrik supports the case that Thailand has faced real dilemmas in being open to capital inflows while at the same time protecting itself from the "whims of global financial markets" :

...what is in effect the most important collateral damage that openness to financial capital inflicts: the tendency for the currency to appreciate, with the usual adverse consequences for investment in tradables and for economic growth. If we should have learned anything from the last two decades, it is that the exchange rate is too important a price to leave to financial markets. Countries that open up to financial capital lock themselves into an inescapable dilemma. Either they let the currency float freely in response to the whims of financial markets, or they have to undertake very costly actions, such as sterilized intervention. Is this what India wants or needs?(Source: Dani Rodrik's Blog)

Furthermore, improving the government's fiscal position and increasing fiscal transparency (built into Thailand's new constitution) is also an important step:

"In the medium run, improving the fiscal position remains one of the key policy tools that can help counter real appreciation. Unlike monetary policy and sterilisation, which largely affect nominal variables, fiscal consolidation can increase domestic savings and hence exert downward pressure on the real interest rate, causing a depreciation of the real exchange rate. Fiscal consolidation is desirable in its own right, but the government should consider making a special effort at improving government finances in response to episodes of sustained appreciation."

Read a recent Bangkok Post article which deals with the same issue. Read more articles about Thailand's monetary recent policy dilemmas.