Bank of Thailand eyes sovereign wealth fund

Bank of Thailand eyes sovereign wealth fund

The Bank of Thailand is studying a plan to use its surplus foreign reserves to establish what would be called a New Opportunity Fund, aimed at increasing returns as a part of efforts to improve the central bank's balance sheet.

Pongpen Ruengvirayudh, the central bank deputy governor overseeing monetary stability, said such a sovereign wealth fund, if established, would be managed by a separate organisation or even the central bank itself.

The study will not take long, but the fund's size cannot yet be estimated.

The purpose of setting up the fund would be to generate more investment returns in the long run with manageable risk.

It would be just one of several measures to improve the Bank of Thailand's balance sheet after accumulating 531 billion baht in losses incurred mainly from foreign exchange stabilisation.

Others include a gradual opening of capital accounts, a reduction in foreign reserves and allowing the baht to move more in line with market forces.

As of Aug 16, Thailand's foreign reserves totalled US$172 billion with a net forward position of $23.6 billion.

The government and the central bank have tussled over the establishment of a sovereign wealth fund for years.

In 2011, then-finance minister Thirachai Phuvanatnaranubala asked the central bank to study the possibility of setting aside a portion of foreign reserves to set up a sovereign wealth fund to invest in infrastructure projects abroad.

Mrs Pongpen said the working panel studying the issue is also considering equity investment to boost returns and narrow the central bank's losses.

However, the central bank will look very cautiously at a plan to reduce foreign exchange reserves, as this could affect the baht's stability.

The Bank of Thailand board will make a final decision on these investment plans, although investment regulations will have to be amended or new regulations drafted for any that are approved, said Mrs Pongpen.

The central bank has been trying to mitigate its financial losses by allowing investors access to foreign investment funds and loosening the foreign exchange rate.

Last year, the central bank's assets were estimated at 3.99 trillion baht, debts at 4.52 trillion and net losses at 442 billion baht, central bank data show.

On the recent capital outflows, Mrs Pongpen said the trend will likely continue, in line with the movement of capital globally. But she insisted capital outflows have not reached a critical stage and that foreign reserves are sufficient to cushion against them.

Despite the current account deficit, economic fundamentals will continue to hold investors' confidence, and the deficit can be attributed to gold imports, said Mrs Pongpen, who said foreign investors have sold Thai bonds worth 15% of their combined holdings of 800 billion baht.

But the central bank does not plan to take steps to control capital outflows, said Mrs Pongpen, adding that baht policy will continue to be managed in accordance with market forces.

Separately, the cabinet approved a Finance Ministry proposal for the transformation of the Vayupak Mutual Fund I from a closed-end to an open-ended fund after its 10-year term expires on Nov 30.

The move aims to help state-owned enterprises to raise funds for investment and reduce their debt while reducing the burden on the government.

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