More than 800 leading Thai economists, including four former central bank governors, have warned of political interference in the selection of the Bank of Thailand (BOT)’s next board chairman.
In a statement on Saturday, the group of economists, who refer to themselves as the “Economists for Society” group, said that the government’s nomination of Finance Minister Kittirat Na Ranong, a loyalist of the ruling Pheu Thai party who has been publicly critical of BOT Governor Sethaput Suthiwartnarueput, could undermine the institution’s “credibility” as an impartial economic arbiter.
The statement follows months of disagreements over monetary policy between the BOT and the Pheu Thai-led government, now led by Prime Minister Paetongtarn Shinawatra. Eager to jolt the Thai economy out of its present torpor, the government has pushed the BOT to cut interest rates and raise its inflation target, a demand to which the central bank has refused to acquiesce. Sethaput has also expressed opposition to the Pheu Thai government’s “digital wallet” stimulus policy.
The “Economists for Society” group pointed to the fact that Kittirat has held multiple political posts under Pheu Thai-led governments, which it said posed a potential threat to the perception of BOT independence. Should the BOT “carry out the wishes of the political group, then it would tarnish the credibility of the central bank, which must maintain a strong economic stability for the country in the long term,” the economists said in the statement, Reuters reported.
According to the Bangkok Post, Kittirat previously served as deputy leader and chief economic strategist for Pheu Thai. He also acted as an advisor to former Prime Minister Srettha Thavisin, and publicly criticized the BOT’s stance on monetary policy.
News of Kittirat’s appointment first leaked last week, prompting expressions of concern from Thai economists and forcing the government to postpone a meeting where the new BOT chairman will be selected. The meeting is now set to be held today.
The group of economists said that it was not opposed to the nomination of Kittirat per se, but that it was campaigning on the principle that anyone with close ties to politicians in power should not serve as chairman of the BOT board.
In a recent speech at the Bank of International Settlements annual conference in Switzerland, BOT Governor Sethaput expressed concern about the increasing challenges to central bank independence of central banks around the world. “If we allow central bank independence to be eroded, we will not be able to deliver on our core mandates,” the governor said.
Shortly after Pheu Thai took office in September 2023, the BOT raised the benchmark rate to a decade-high of 2.5 percent. Despite repeated calls by the government for an easing of monetary policy, the rate remained untouched until last month, when the central bank unexpectedly announced a cut of 25 basis points, the first since 2020. Given the pressure from above, it has since been forced to assert that the move was a “recalibration” and not a result of political pressure.
For its own part, the Thai government insists that it respects the BOT’s independence, but wants it to do more to help it revive the economy, which has performed sluggishly since the end of the COVID-19 pandemic. As James Guild wrote in these pages back in May, the Pheu Thai government has a number of reasons for a return to the low interest rates that have been a feature of the Thai economy for years.
The first is that it keeps the baht from strengthening, which could potentially undermine the competitiveness of Thailand’s exports, including tourism. The second reason is the country’s high levels of consumer debt, which have been exacerbated by the higher interest rates, and have the potential to translate into political problems for the Pheu Thai government.
The BOT, meanwhile, is being forced to walk a fine line in managing the Thai economy. “If the baht is too strong, it will make Thailand less attractive as a tourist destination or export hub,” Guild wrote. “But if the baht loses too much value too quickly, it can lead to capital flight that debases the currency and destabilizes the economy.”