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Thai Finance Chief Thirachai Defends Sovereign Fund Plan

Thai Finance Chief Thirachai Defends Sovereign Fund Plan
The Thai national flag is flies in front of the Bank of Thailand headquarters in Bangkok, Thailand. Photographer: Dario Pignatelli/Bloomberg

Sept. 5 (Bloomberg) -- Thai Finance Minister Thirachai Phuvanatnaranubala said the establishment of a sovereign wealth fund may help the central bank narrow losses on its currency and bond investments.

“It’s a suggestion to help resolve the problem,” Thirachai wrote on his official Facebook page yesterday. “While the central bank hasn’t asked the government to help fund its losses, the assets of the Bank of Thailand are national assets. They should be better managed.”

Thirachai asked the central bank last week to consider using part of the country’s foreign reserves to establish a fund that would invest in infrastructure projects. Former Finance Minister Korn Chatikavanij said any decision should be made independently by the Bank of Thailand, and the government’s promotion of the proposal could erode investor confidence.

“The retaining of reserves is principally in order to build confidence, and having political appointees sounding off about sovereign wealth funds and where such funds should be invested does not bode well for confidence that reserves will be independently and professionally managed,” Korn said by phone.

Thailand’s foreign-exchange reserves have expanded 10 percent to $189.4 billion this year, according to data from the central bank. The Bank of Thailand reported a net loss of 117.5 billion baht ($3.92 billion) last year, including a loss of 260.2 billion baht on the revaluation of its reserves, according to its website.

Not ‘Profit-Seeking’

“We are not a profit-seeking organization,” Bank of Thailand Governor Prasarn Trairatvorakul told reporters today. “Our job is to maintain monetary stability for the economy as a whole and make sure all businesses can run smoothly.”

The central bank is conducting a one-month study into the feasibility of establishing a sovereign fund, Prasarn said.

“This is just a preliminary idea,” Thirachai said today, confirming the comments he made online earlier. “To set up the fund, we must have enough reserves to back up the issuance of bank notes.”

Korn, Thirachai’s predecessor, said he’s not “theoretically” opposed to the creation of a sovereign fund.

“But the decision as to whether it should be set up and definitely the decision as to when it is set up, or if it’s set up where the funds should be invested, should rest solely with the central bank, and perhaps the central bank plus some non-political experts, but should not be something that the government, any government, should be talking about.”

GIC, Khazanah

Thailand’s proposed country fund may be similar to the Government of Singapore Investment Corp., which was established in 1981 and manages more than $100 billion of Singapore’s reserves, including investments in Citigroup Inc. and UBS AG.

Singapore also operates a state-owned investment company, Temasek Holdings Pte, which manages S$193 billion ($160 billion). Temasek, set up in 1974, generates profit from the income of the companies it owns, and not government budget surpluses or oil revenue.

Malaysia’s state-owned Khazanah Nasional Bhd. has 75 billion ringgit ($25.2 billion) of assets including investments in more than 50 local and overseas companies, according to its latest annual review.

China Investment Corp., set up in 2007 with $200 billion in initial capital, managed $409.6 billion as of the end of 2010, making China’s sovereign wealth fund the world’s fifth-biggest country fund, according to the Sovereign Wealth Fund Institute.

Investment Risks

Thirachai said Thailand’s central bank could manage the fund and deduct expenses before transferring any profit to the government.

“There are always risks from any kind of investments,” he said. “It depends on how we will manage the risks.”

Thirachai also said he wants to accelerate a plan to allow more international banks to operate in Thailand. He didn’t provide a time frame.

“I am thinking about financial liberalization by allowing top banks in Asean or Asean plus three countries to set up offices and do businesses in Thailand,” Thirachai said. “This should benefit our trade and stimulate competition.”

To contact the reporter on this story: Anuchit Nguyen in Bangkok at anguyen@bloomberg.net; Suttinee Yuvejwattana in Bangkok at Suttinee1@bloomberg.net

To contact the editors responsible for this story: Darren Boey at dboey@bloomberg.net; Stephanie Phang at sphang@bloomberg.net

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