As president of the state-owned Export-Import Bank of Thailand, Pridyathorn Devakula often criticized Thai central bank governor Chatu Mongol Sonakul.
By Kevin Hamlin
August 2001
Institutional Investor Magazine
So it was not surprising that when Pridyathorn, 53, took over for Chatu Mongol as central bank chief in May, he instituted some policy changes. But no one guessed how sweeping and controversial they would be.
For a start, Pridyathorn tampered with Chatu Mongol's low-interest-rate policy, hiking the key 14-day repurchase rate a full percentage point, to 2.5 percent. That dismayed foreign analysts, who believe that higher rates will hamper Thailand's recovery from the Asian financial crisis. Pridyathorn tells Institutional Investor that he is not in favor of higher interest rates per se but merely applied a one-off fix for a temporarily distorted interest rate structure.
Pridyathorn provoked further controversy last month when he announced that Thailand would follow a "middle road" on the baht, seeking to limit the Thai currency's daily volatility and give "businessmen peace of mind." Skeptics warned that the central bank was headed down a slippery slope toward a fixed exchange rate. "We won't oppose the long-term exchange rate trend," says Pridyathorn now. "We have a floating system with inflation targeting."
Most recently, Pridyathorn has alarmed foreign investors by promising more flexible regulations for banks, which he's urging to rely less on quantitative Western credit-assessment models and pay greater heed to relationships and borrowers' reputations. He criticizes Chatu Mongol's regime for too-strict regulation that caused banks to shy from legitimate risks.
"We have to have an environment whereby people can commit normal mistakes," he says. "Because of the lessons Thai banks learned in the past and because of the kind of attitude that the central bank used to imprint on them - if you are making mistakes, we chop off your head - they have been too risk-averse."
The central bank, Pridyathorn adds, used to act like a "policeman" but will now lighten its touch and become more like a "supervisor." With economic growth expected to slow, Pridyathorn believes that banks have a crucial part to play in keeping the economy afloat. "You have to admit," he says, "that when you lend out money, part of your fingers will be burned. But if you don't lend at all, the economy doesn't move, and that's even more severe."
To Pridyathorn's critics, however, such talk sounds dangerously like a call for a return to the indiscriminate lending practices that predominated until late 1997, when Asia's financial meltdown triggered the virtual collapse of the Thai banking system. Banks' nonperforming loans totaled $62 billion at the peak of the crisis.
Pridyathorn, who holds an MBA from the University of Pennsylvania's Wharton School, describes himself as "a practitioner, not an economist." Clearly, he is imposing a fundamental change in management philosophy and style on the central bank. The bank lost credibility in mid-1997 when it squandered nearly $36 billion of foreign exchange reserves in a futile bid to defend the baht against speculators and then was forced to devalue. A government investigation of the bank found cronyism, mismanagement and political interference. Chatu Mongol was brought in to clean up the bank and is credited with restoring its credibility.
Pridyathorn is seen as more of a team player than his proud and often abrasive predecessor, who was fired by Prime Minister Thaksin Shinawatra. He and Chatu Mongol had clashed over the governor's low-interest-rate policy.
Pridyathorn believes that to be successful, the bank now must persuade the government to stand by its side: "Once we convince them to go along, the message will be clear to the world that the policy we implement is totally agreed on by everyone."
But don't expect the central bank chief to refrain from exercising the independence his office affords. "I criticized the previous government out in the open," he says. "I'm not diffident."
