Thailand's Finance Minister Tarrin Nimmanahaeminda has frequently clashed swords with central bank governor Chatu Mongol Sonakul--the man he chose to clean up the scandal-plagued bank responsible for starting the disastrous economic crisis in 1997 He is still happy with his choice, but admits Chatu can exasperate him from time to time. He spoke with TIME reporter Robert Horn. Excerpts of the interview:
TIME: Is it true Chatu Mongol was your choice for governor?
Tarrin: That's right. I thought he would be a very good governor. And I think he's turning out to be a very good governor.
TIME: How would you describe your relationship?
Tarrin: Professional. But vice versa, I don't know.
TIME: Can you tell us about your recent meeting with the governor. How did it go?
Tarrin: It was a good meeting. I invited the governor to have lunch with me because when we go to the public seminar [the ministry is organizing for late May on debt held by the Financial Institutions Development Fund] there should be no differences in the government position. It is very important not to further confuse the public.
TIME: Were you having difficulties arranging a meeting with the governor? The press reported he was avoiding you.
Tarrin: They just made too much out of it. I had just come back from the IMF and the World Bank meeting (in Washington D.C.) over the weekend and the prime minister was on record publicly stating that he had invited both of us for lunch on Monday. For some reason the governor was not there. But he had a session with the prime minister later that day.
TIME: Why has this issue received so much attention from the media?
Tarrin: Number one is because some people in the central bank and opposition are saying the [foreign] reserves should not be touched. Number two is the unfortunate position which the governor has boxed himself into. The governor sent me a letter a long time ago saying he was prepared (to contribute to paying off the FIDF debt). It is not my place to make public that letter. The governor himself should reveal his offer.
TIME: What are the differences between you and Bank of Thailand Governor Chatu Mongol Sonakul as far as using foreign reserves to pay the debt of the Financial Institutions Development Fund?
Tarrin: A number of misunderstandings have been presented as facts. Number one is that the excess reserves are the property of the central bank. Number two is that the government's policy is to weaken the central bank. And number three is that this issue is somehow related to the issue of independence of the central bank. There was a Juridical Council interpretation 22 years ago that the reserves belong to the State and not the central bank. As for any excess reserves, the Cabinet passed a resolution that says they will be used as follows: Priority number one is to back up the baht currency as much as possible, and in fact it is our desire to have two times the value of baht in circulation backed up by foreign currency. That is very high by international standards. The second priority is to help the financial position of the central bank. To make sure that the central bank can do its job properly, it must be financially sound. If there is any cash remaining, it should be used to help reduce the FIDF obligation.
TIME: Can you explain what the FIDF is?
Tarrin: The FIDF is chaired by the central bank governor. It's part of the Bank of Thailand, but a separate legal entity used as an agent in order to stop systemic problems in the banking and financial systems.
TIME: How serious is the issue of the FIDF debt?
Tarrin: If we cannot manage the FIDF well, its public costs and obligation would become a major concern in the future, leaving this generation in a such a bad fiscal position that it would overcrowd all public expenditure and deteriorate the market's confidence, which is a very serious issue in the long run. If we have a weak fiscal position and budget problems, it will hamper the government's ability to invest to reduce social problems or to develop the country. It would hamper our tax policy and our ability to stimulate the economy.
TIME: How large is the debt?
Tarrin: This is where the difference is between the governor and myself. At the moment, the FIDF has about 750 billion baht ($19.5 billion) in outstanding debt. But various numbers have been brandished around and have been causing a lot of confusion. And this is what I have been asking the FIDF to explain; what have they done and at what cost Silence is very bad for public understanding, and the ministry can not explain on their behalf.
TIME: Now, the governor has taken a different position Tarrin: A shifting position.
TIME: So these differences in policy...
Tarrin: It's not a policy difference. It's a difference over money, the amounts.
TIME: Another source of friction between your ministry and the central bank was the level of nonperforming loans at the state-run Krung Thai Bank. You had requested the central bank make public its figures on the matter before you were grilled in a no-confidence debate in parliament last December. Was the central bank cooperative?
Tarrin: They didn't explain anything (laughs), even though it's their job.
TIME: Why they didn't come forward with the information?
Tarrin: It beats me.
TIME: What was your reaction when the governor did not respond?
Tarrin: Exasperation. When there are public issues which are not directly a Ministry of Finance issue, we need the government agency directly responsible to clarify the information. I mean, that is the normal thing to do in any good governance.
TIME: It's also been reported that there are differences of opinion between you and the governor over the draft law to make the central bank independent.
Tarrin: You must remember it's only a draft law and there is still a long way to go in terms of parliamentary approval. We want the central bank to be a very independent institution because it is the trend of central banks around the world to be neutral and independent and tasked with specific jobs. Our new draft law calls on the central bank to do two main duties. The first is to control price stability and, secondly, to ensure the soundness of the financial system, as opposed to the current law which says simply it is supposed to do the central bank's job.
TIME: How soon will the new law be put to parliament for a vote?
Tarrin: It is really difficult for me to predict as you know the prime minister is on record saying that the government will not serve out its term [which is scheduled to end in November]. Even if we pass the budget there may not be sufficient time to pass this law. It is my determination to try and pass it. It is part of the program of reform.
TIME: But much has been made of the fact that the Cabinet will still be able to fire the governor, and so some see that is a constraint on true independence.
Tarrin: The central bank must be in a position to oppose political influence. That is very important if it is going to carry out its job. So a specific provision has been written, in that, in trying to pursue their job, the governor or the central bank board cannot be sacked or changed. I think it's important to understand the following things: Number one, our constitution does not allow a government organization, the bureaucracy or state organization to be completely independent the way things like the Constitutional Court, Elections Commission, Parliamentary Ombudsmen, or Counter Corruption Commission are. Those are special organizations specified in the constitution. Others must have some link to the government. We therefore, as required by the constitution, have written the law stating the Ministry of Finance will be responsible for the central bank. But I have to get parliamentary approval. You must understand: because the central bank did not perform its job up to standard, the Asian economic crisis started in 1997.
TIME: Are the differences in viewpoints between the governor and yourself healthy?
Tarrin: Of course not. I'm on public record as saying it is causing public confusion and could undermine confidence due to misunderstanding, and we want to end misunderstanding. You must also understand the ministry has never wavered -- we have always tried to explain things.