Bank of Thailand (BoT) chairman Virabongsa Ramangkura is urging Prime Minister Yingluck Shinawatra to intervene directly to resolve the currency dispute between the central bank and the Finance Ministry.
He pointed to the cabinet's ability to remove BoT governor Prasarn Trairatvorakul, who has been at loggerheads with the government over whether to lower interest rates to weaken demand for the baht.
Bank of Thailand Governor Prasarn Trairatvorakul (left) faces chairman Virabongsa Ramangkura, who says the government must act on the dispute with Mr Prasarn.
However, the chairman stopped short of directly calling for the governor's removal, saying only that the current working relationship between the government and the bank was untenable.
Mr Virabongsa, who was appointed to the chairman's position last year, said he has warned the BoT for four years about the rising baht, but his concerns have been ignored.
"I'm concerned if nothing is done to fix the problem, the country could sink to its demise or the economy could go into bankruptcy," he said.
The problem requires the prime minister's intervention, he added.
Under Section 28/19 of the BoT Act, the central bank's governor can be removed from office by the cabinet on the recommendation of the finance minister for wrongful misconduct or dishonest performance.
The minister or the BoT board could also make a similar recommendation to the cabinet if the governor is grossly incompetent or incapable of performing duties, Mr Virabongsa pointed out.
However, the chairman said he does not wish to see the axe fall on Mr Prasarn. But as BoT board chairman for more than a year, he said he has been witness to a consistently problematic working relationship between the BoT and Finance Minister Kittiratt Na-Ranong.
Fiscal and monetary policies should work in tune to create economic stability, he said. But instead consultations between the two sides have been less than smooth.
Mr Virabongsa said his chief concern was that the governor and Mr Kittiratt gave conflicting comments over the response to the rising baht. He noted the BoT was pinning the responsibility on its Monetary Policy Committee (MPC), while the Finance Ministry was holding the BoT to account for the strong baht.
The BoT has insisted it has various measures to weaken the currency and ease the burden on exporters, but none of them have been implemented, Mr Virabongsa said.
He said the finance minister has the ultimate responsibility for managing the economy, but was not able to interfere with the BoT.
The BoT's work has a direct impact on the economy and the export sector. But no one is taking direct responsibility for the rising baht, Mr Virabongsa said.
The BoT chairman warned the country is at risk of a repeat of the 1997 economic meltdown.
The currency gains are the result of having higher interest rates than other countries, encouraging more foreign inflows and increasing demand for the baht, he said.
Democrat Party deputy leader Korn Chatikavanij, also a former finance minister, said firing Mr Prasarn would not be easy. "Being unable to work with the finance minister doesn't mean he [Mr Prasarn] is in the wrong."
Another ex-finance minister, Thirachai Phuvanatnaranubala, said there are no grounds to dismiss Mr Prasarn as inflation is under control. Inflation is one of the key criteria for assessing the BoT governor's performance.
Mr Kittiratt, meanwhile, said no solution has been found to the surging baht even after several meetings between the ministry, the BoT, the National Economic and Social Development Board, and the Budget Bureau. He said the meetings agreed the BoT should cut interest rates or seek other measures to help exporters. The BoT has said it fears that a rate cut would undermine the economy.