Central bank not planning sovereign wealth fund

 

The governor of the Bank of Thailand said last week that he is not planning or pushing for the creation of a sovereign wealth fund despite moves to allow the central bank to invest its reserves in a wider range of instruments, amid speculation by some analysts that the changes are a precursor to the establishment of such a fund.

A sovereign wealth fund would be used to fund infrastructure projects and development, and Thailand’s government is planning infrastructure investments of over $60 billion. But Bank of Thailand Governor Veerathai Santiprabhop has said he does not support using the central bank’s reserves for that purpose.

“The reserves do not belong to any government.  Rather, it is the money of all Thais, aimed at maintaining the stability of international transactions,’’ he said.

Several countries in the region, such as Singapore and China, have sovereign wealth funds that are used for infrastructure development, and the previous Thai government had put strong pressure on the Veerathai’s predecessor for access to the bank’s reserves to fund its own infrastructure projects. But the previous governor also refused. The current government has said it will rely mainly on public private investments models to fund its projects.

The central bank has accumulated roughly $155 billion in foreign reserves, equal to about nine months worth of import value. The figure had reached US$180 billion, but sluggish exports drained some of that away. Nonetheless, it represents an impressive resurrection of the country’s fortunes nearly two decades after the 1997 financial crisis saw the reserves depleted and necessitated a bail out by the International Monetary Fund.

Veerathai insisted that the reserves are funds of last resort, and all other options must be exhausted before they could be tapped by any government.

However, the governor is seeking changes to laws overseeing the central bank’s ability to invest, wishing to expand the types of investments it can make. Veerathai stressed that the changes he is seeking would not allow the bank to invest in unconventional or risky instruments.

Yields from government bonds in several countries, a typical investment for the bank, have fallen sharply because of quantitative-easing measures. Searching for higher returns, the Bank of Thailand is considering investing a portion of the reserves in global equity markets, in addition to highly rated corporate bonds.

Investments must meet criteria for returns, liquidity and stability, the governor said.

The Bank of Thailand Act would have to be amended to allow the central bank to extend its investment into other asset classes such as equities.

“For instance, if we invest in certain derivatives that can hedge against risks, then this would induce greater risk management for the central bank,” the governor said, adding that his predecessor originally proposed the idea.