SHAKE-UP AT THAILAND'S CENTRAL BANK: WILL THE ECONOMY SUFFER?

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP04T00367R000302080001-0
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 5
• Document Creation Date: December 21, 2016
• Document Release Date: February 25, 2009
• Sequence Number: 1
• Publication Date: September 21, 1984
• Content Type: REPORT

Approved For Release 2009/02/25: CIA-RDP04T00367R000302080001-0
Central Intelligence Agency
Washington, D. C. 20505
DIRECTORATE OF INTELLIGENCE
21 September 1984
Shake-up at Thailand's Central Bank:
Will The Economy Suffer?
Summary
After months of intrabureaucratic wrangling
over the conduct of Thailand's monetary policy,
Finance Minister Sommai Huntrakun last week forced
the resignation of NukunPrachuapm the respected
Governor of the Bank of Thailand.
Nukun's replacement, Kamchon Sathirakun, may
not be able to stand up to Sommai on politically
sensitive economic issues. If that is the case, we
would look for a weakening of the Bank's apolitical
management and potential damage to Thailand's hard-
earned international reputation for creditworthiness
and sound financial management.
This memorandum was prepared byl (Office of
East Asian Analysis. Information available as of 21 September
1984 was used in its presentation. Comments and queries are
welcome and may be directed to Chief, Southeast Asia Division on
84-10176
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Nukun's Role as a Policymaker
In his five years as Governor of the Bank of Thailand, Nukun
led the monetary strategy that helped move Thailand into its
position as one of the most creditworthy economies among
developing nations.* After posting large balance of payment
deficits in the late 1970s, Thailand achieved a $2.5 million
surplus in 1980 followed by surpluses in excess of $1 million in
1981 and 1982. This impressive performance during Nukun's tenure
focused international attention on the Thai economy for the first
time. The World Bank cited Thailand as one of the developing
world's success stories and praised Bangkok's willingness to make
hard economic decisions.
In 1983 export earnings fell and imports sharply increased
to support a domestic investment boom and the rebuilding of
depleted inventories. Nukun adjusted the expansionary policies
he had used to stimulate the economy during the global recession
in order to scale down bank lending in general and curb imports
in particular. The Bank of Thailand raised standard interest
rates on loans to commercial banks and introduced a package of
credit expansion controls that included an 18-percent annual
limit on increases in commercial bank lending. The resulting
high interest rates put additional strains on an already tight
money market, causing the collapse of several finance companies--
ti
it
nq
a
while threatening the collapse of many others--and orecio
a record number of small business bankruptcies.
Although Sommai disagreed with a number of Nukun's,moves,
his imposition of credit controls, for example the Finance
Minister at first did not intrude in central bank policy.** As
the problems within the financial sector increased, however,
Sommai began to take action. Last month, in an unprecedented
move, the Finance Ministry took over the troubled Asia Trust
Bank, which according to press reports, had already been under
close central bank supervision because of excessive lending
without proper collateral. About two weeks later, the government
rescinded the 18-percent ceiling on commercial bank credit
expansion. Finally, on 14 September Sommai forced Nukun's
resignation.
*A recent international multibank loan of US$200 million for
the Electricity Generating Authority of Thailand received terms
among the best obtainable in Asia--only .375 percentage points
above the London Interbank Offered Rate.
**By law, the Bank of Thailand is under the jurisdiction of
the Ministry of Finance.
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The New Man: Can He Resist Sommai?
Sommai's selection of Kamchon, a Finance Ministry
subordinate, to replace Nukun suggests the Minister plans to keep
a-hand in central bank operations.
If-that is the case, the bank's willingness to institute
politically unpopular policies will be weakened. The Prem
government is under pressure because of the country's economic
difficulties--the politically powerful General Athit Kamlang-ek
has publicly criticized the government's handling of the economy
and called into question Prime Minister Prem's ability to
maintain Thailand's high reputation in international financial
circles.
Indicators of Problems in the Economy
Sommai would probably prefer a less restrictive monetary
policy in an effort to ease some of the political pressure on the
government. Although such policies would not permanently damage
the economy, there is a real possibility in the short-run that
they could create inflationary pressures that would worsen the
balance of payments and accelerate foreign borrowing, which has
been rising rapidly in recent years.
We believe that several of the following developments would
provide advance warning that the monetary policies being pursued
under Kamchon were not working, and that Thailand's economy could
be headed for trouble:
-- Rapid expansion of credit
-- Rapid growth of imports.
-- A sharp drop in foreign exchange reserves.
-- Increased politicization of longer term economic policy.
-- Rising interest rates on commercial loans and/or shorter
term maturities.
-- More government propping up of the private financial
sector or more government takeovers of troubled. firms.
-- Return of a rigid interest rate ceiling, which would
reduce the flexibility of the financial sy~$,tem to adjust
to changes in credit conditions.
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 Approved For Release 2009/02/25: CIA-RDP04T00367R000302080001-0
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SUBJECT: Shake-up at Thailand's Central Bank:
Will The Economy Suffer?
OEA/SEA/ITM
Byron Jackson, Commerce
Frazier Meade, State
Jim Henderson, State
Alan Kitchens, State
Alice Straub. State
Lt. Col. Denny Lane, Pentagon
Doug Mulholland, Treasury
Bill McFadden, Treasury
DDI
NIO/EA
C
OCR/EA/ASIA
N na ytica ro
C/NIC
CPAS/ILS
CPAS/IMC/CB
D/OEA
OEA/Research Director
OEA/SEAD
OEA/SEA/IB
OCR/ISG
OEA/NEA
OEA/CH
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