Former governor reminds finance minister of the importance of central bank independence

Former central bank governor Tarisa Watanagase has sent an open letter, addressed to Finance Minister Pichai Chunhavajira, reminding him of the importance of the independence of the central bank from political interference in the selection of its new governor.

The selection committee has narrowed the list of candidates to Roong Mallikamas, the incumbent deputy governor of the Bank of Thailand, and Vitai Ratanakorn, president of the state-run Government Savings Bank.

In her open letter, Tarisa points out that the most important qualification for a central bank governor is their independence from political interference.

This has been the cornerstone of the central bank’s credibility among foreign investors, she noted, adding that this does not mean that the central bank and the government are at odds, but that they must work together, albeit with different policies, both in the short and long-term.

The central bank’s policy, she said, is focused on the long-term effects of short-term policies, which may have negative effects, and its independent of political interference.

She cited the case of Turkey, when President Erdogan interfered with the country’s central bank by mandating low interest rates, which led to an increase in the cost of living and loss of investor confidence.

Tarisa noted that staff of the central bank innately understand the importance of central bank’s independence, which is unlike the staff of state-run banks, which are aligned with and responsive to the government’s policies, “because, when there is damage, they will be compensated by the government.”

“This is different from the central bank, because damage rendered is damage to the country”, she said.

Amidst all the challenges, be it under-performing economic growth, high household debt, now as high as 87.5% of GDP, or the current trade war being waged by the US, Tarisa said she hopes Finance Minister Pichai will not do anything which would impinge upon the central bank’s credibility.