HOW SAFE ARE OUR $ RESERVES?

       Deputy Prime Minister Korbsak Sabhavasu has expressed grave concern over a lack of balance in the monetary-policy management of the Bank of Thailand.
       He said the BOT had encouraged a free flow of capital into the country while failing to allow capital to flow out in an equally free manner.
       "This practice has brought about an imbalance of the BOT's monetary-policy management. That's why we have witnessed a rise in the baht against the US dollar," he said.
       A Government House source said the central bank appeared to have been caught in a similar trap to that experienced in 1997, when it tried to prop up the baht by selling the dollar in order to avoid a devaluation.
       It ended up losing most of its US$39 billion in foreign-exchange reserves, forcing the country to seek a bail-out from the International Monetary Fund.
       The source said the situation was currently equally grave but also a reverse of the 1997 situation.
       "The BOT has been buying up dollars to weaken the baht and keep it competitive. This foreign-exchange intervention also includes its forex swap operations. But since the dollar's value is going down, the central bank is suffering huge losses in baht terms in its accounting book," the source added.
       The BOT now holds about $130 billion (Bt4.35 trillion) in foreign-exchange reserves, much of which is in US dollars. The continuing fall of the dollar because of growing deficits and huge damage to the US financial system will result in losses of Thailand's wealth, and also losses on the central bank's balance sheet.
       As of July, the BOT held about $31.4 billion in US Treasury securities, compared with a peak of $39.7 billion in February.
       Many countries, particularly China, are looking at ways to reduce their dollar holdings, because of the impending fall, if not collapse, of the greenback.
       BOT Governor Tarisa Watanagase has been saying the central bank has diversified its dollar holdings of |foreign-exchange reserves. |But she also recently said the dollar would continue to be |the major global currency for the foreseeable future.
       Amporn Saengmanee, director of the central bank's Monetary Policy Department, echoed the BOT's confidence in the dollar.
       He said the greenback would continue to be a strong currency with credibility among the world's trading nations.
       "It would be difficult for other currencies to replace the dollar even though the dollar might be fluctuating sharply in some periods," he said.
       Meanwhile, Korbsak said the US would not experience a V-shaped economic recovery.
       "I think the US will be recovering in a U shape or W shape. However, purchasing power in the US will be not the same as previously, and the financial system and its currency are still facing problems. The unemployment rate is still high," he added.
       The deputy premier said the problems faced by Thailand's export sector would be prolonged. The country should therefore rely more on domestic consumption.
       "However, we have seen a good sign for local business people, as both the government and the opposition have agreed for the first time to amend the Constitution. The move will help promote higher confidence in the local political situation," he said.