TPP Poses Challenges to Thailand’s Financial Sector: BOT

The Nation November 14, 2012 12:38 pm

Though not opposing the Trans-Pacific Partnership (TPP), the Bank of Thailand raised concerns on the influence of such agreement on Thailand’s investment and capital flows. In a research written by Harit Rodprasert, a senior economist, the author expresses concerns in two main areas.

First, the policy space to keep capital flows in control. He noted that TPP tends to limit member countries’ ability in keeping capital flows at the level accommodating economic and financial stability. Capital flows offer new options for investment, saving and fund mobilisation. In the form of foreign direct investment, the flows could lead to transfer of technology and greater competitiveness. Yet, they could generate risks to the financial sector, if this leads to foreign exchange volatility. The influx could also cause bubble in the property market. Massive outflows, in contrast, could pose problems in a country’s balance of payments and liquidity.

“The agreement under the TPP framework would benefit the general public only when investor protection and policy space is balanced,” he said.

The TPP is a key part of US President Barack Obama’s economic strategy and the government’s move to join the group coincides with next week’s visit by Obama. Thailand has already signed free-trade agreements with other members of the bloc, except the US and Canada. Original signatories to the group are Brunei, Chile, Singapore and New Zealand while negotiating members include Australia, Vietnam and Malaysia. Other negotiating members are Canada, Mexico, Peru and the US.

Second, Harit was concerned if Thailand and other member countries would be pressured to open up their financial sectors up on the US requests.

He noted that liberalisation in developing countries would enhance efficiency of the financial sector, but policy makers must also take into account the competitiveness of local players. The timing of the liberalisation is crucial, to ensure preparation among local players. Plus, allowing cross-border transactions without the presence of physical branches could also compromise the supervision and consumer protection.

“The financial liberalisation must be carried out gradually, taking into account benefits to consumers and readiness of financial institutions. Local players need time to adjust and increase competitiveness, for sustainable development,” he said.

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