VZCZCXYZ0000
RR RUEHWEB

DE RUEHBK #1399/01 0680223
ZNR UUUUU ZZH
R 090223Z MAR 07
FM AMEMBASSY BANGKOK
TO RUEHC/SECSTATE WASHDC 5403
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASH DC

UNCLAS BANGKOK 001399 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
STATE FOR EAP/MLS AND EB 
COMMERCE FOR EAP/MAC/OKSA 
TREASURY FOR OASIA 
STATE PASS TO USTR FOR WEISEL 
STATE PASS TO FEDERAL RESERVE SAN FRANCISCO FOR DAN FINEMAN 
STATE PASS FEDERAL RESERVE NEW YORK FOR MATT HILDEBRANDT 
 
E.O. 12958: N/A 
TAGS: ECON PGOV PHUM PREL TH
SUBJECT: THAILAND'S NEWLY APPOINTED MINISTER OF FINANCE 
 
SENSITIVE BUT UNCLASSIFIED HANDLE ACCORDINGLY 
 
¶1.  (SBU) Summary.  In a meeting with visiting Regional Finatt and 
Econoff, Dr. Chalongphob Sussangkarn, President of economic 
think-tank Thailand Development Research Institute (TDRI) and newly 
appointed Minister of Finance, said that his priorities in office 
would be to strengthen the monetary and fiscal systems in Thailand 
and improve investor confidence, particularly foreign investor 
confidence. He opined that the imposition of capital controls was 
too broad, but implied that  more targeted controls could be a tool 
to help middle-income countries deal with the large inflows of 
capital they  are experiencing. He said he opposes the proposed 
amendments to the Foreign Business Act and will voice his opposition 
to them in cabinet although it is an issue that lies outside his 
portfolio. Chalongphob stated his key priorities as being monetary 
and fiscal reform to reduce opportunities for corruption and better 
assure sustainable development of the economy. End Summary. 
 
Restoring Thailand's "foreign friendly" reputation 
--------------------------------------------- ----- 
 
¶2.  (SBU) Dr. Chalongphob said the previous finance minister had 
created an "anti-foreigner" perception which he hoped to reverse. He 
asserted that Thailand's main comparative advantage in the region 
was that it was "foreign friendly" due to its lack of a colonial 
history and therefore had "no fear" of foreign influences or need to 
favor one foreign group over another. This advantage, he implied, 
was being lost through recent policies pursued by the present 
government. 
 
¶3.  (SBU) With regard to the Foreign Business Act (FBA) changes, 
Chalongphob said it was too broad to address the "gaps" in the 
telecom sector where the real problems were selling "monopoly" 
assets inappropriately.  While he said he does not have direct 
responsibility for telecoms or the FBA, he promised that he would be 
"a voice in the cabinet" arguing against excessively anti-foreign 
investment measures. 
 
¶4.  (SBU) On capital controls, Dr. Chalongphob reiterated the views 
published by TDRI that the measure was too broad an instrument to 
address the capital inflow problems.  He lamented the lack of 
monetary policy experience of BoT Governor Tarisa, pointing out that 
"she is a regulator" and "still learning about monetary policy."  He 
noted that countries do need capital controls, but that there are 
"no clear answers" nor "one easy solution."  He stated that most 
important are to not create a "major shock" and for the solution to 
be "appropriate."  He noted that many middle income countries are 
searching for a solution on how to deal with strong foreign inflows. 
 
 
¶5.  (SBU) Chalongphob related that at a recent academic conference 
in Madrid where he presented, non-Asian countries such as Turkey 
were inquiring about Thailand's experience with capital controls. 
He was not optimistic, however, that either the ASEAN Plus3 Finance 
Ministers or the EMEAP central bankers group showed enough promise 
of coordination to be used as effective tools for pressuring China 
(or Japan) to have more flexible currencies. In previous discussions 
with Econoff, Dr. Chalongphob has said that he believes some form of 
capital controls are necessary and proposed a form of capital gains 
tax on profits earned from foreign inflows. 
 
¶6.  (SBU) Finatt emphasized the importance of improving 
communication with market participants to prepare them for changes 
such as capital controls and to ensure that the broadest range of 
policy options had been considered appropriately before such 
draconian measures are adopted. He agreed that "managing market 
psychology" was something that needed improvement, particularly 
cited BoT language last November and December that led to the 
perception of a "one-way bet" on the Baht that exacerbated the 
appreciation of the currency. 
 
Priority to put in place good systems for economic policy 
--------------------------------------------- ------ 
 
¶7.  (SBU) Dr. Chalongphob identified his first priority as 
"improving the system of monetary and fiscal policies" in Thailand. 
He particularly highlighted the need to close "loopholes" on 
megaprojects to ensure that the laws and regulations regarding 
careful evaluation were followed properly so as to avoid abuse. 
While noting the importance of public private partnership, he 
thought that transparency of the contingent liabilities embedded in 
these projects was important to prevent their abuse by "populist 
policies."  He noted that only with more transparent data could an 
"early warning system" be developed to address inappropriate risks. 
Dr. Chalongphob did not respond to a question from Econoff about 
whether this would include addressing the contingent liabilities of 
the state financial institutions, such as the government's housing 
bank. 
 
The politics of prioritization and perceptions of conflicts 
--------------------------------------------- ---- 
 
¶8.  (SBU) Dr. Chalongphob acknowledged the back up of proposed 
legislation at the Council of State due to the many pet projects of 
various ministries trying to pass laws during the period of the 
interim government. Chalongphob said that he would be working with 
Deputy Prime Minister for Economy (excepting finance) Kosit to 
prioritize the various proposed laws; acknowledging that there seems 
to be no prioritization currently.  While mainly focusing on the 
fiscal side, he said he would want to review the Bank of Thailand 
Act --- that would improve the independence of the central bank --- 
to ensure that he could support it and justify it to parliament in 
the future.  Note: The previous finance minister who approved the 
BoT Act had served as its governor as well, which may have created 
some perception of potential bias.  DPM Kosit hails from Bangkok 
Bank, one of Thailand's top private banks, and will have to tread 
carefully to avoid conflicts of interest.  Kosit's background - and 
presumed desire to return to the banking industry - explains why 
finance was excluded from his portfolio and why Dr. Chalongphob will 
report directly to the Prime Minister rather than through Kosit like 
the other economic ministers. End Note. 
 
Less focus on pushing bureaucracy to disperse fiscal stimulus 
--------------------------------------------- - 
 
¶9.  (SBU) Embassy contacts have recently emphasized the importance 
of rapid disbursement of this year's government budget to stimulate 
the moribund domestic economy. They note that one year's budget must 
be disbursed in only 9 months since the budget was passed three 
months late and that bureaucrats are proving reluctant to push 
things along for fear of punishment if a later government finds any 
suggestion that the rules for disbursement were not stringently 
adhered to. The fiscal stimulus is seen as particularly important 
for economic growth given weak consumer and investor confidence and 
pressure on exports from the stronger currency. In response to our 
question about this problem, Chalongphob simply said the bureaucrats 
would do their job. 
 
¶10.  (SBU) Comment: Dr. Chalongphob seems to be a well-meaning 
academic with the best of intentions for developing better systems 
for future economic policy management. However, he has never worked 
in government (or the private sector) and may not have the political 
and bureaucratic skills to push through things vital for short term 
economic growth such as fiscal spending on mega-projects. He does 
seem intent on reversing anti-foreign sentiment and taking a more 
sympathetic position on the concerns of foreign investors; but how 
the large nationalist grouping in cabinet will react to this is 
uncertain. The role and influence of Deputy Prime Minister Kosit 
versus that of the new Finance Minister will also have to be 
carefully monitored. With the departure of Pridiyathorn as economic 
czar, the new chief policy-maker job would seem to be open. We hope 
that Chalongphob's investor-friendly views prevail. He 
 
Boyce