Pheu Thai Versus Bank of Thailand: More Than a Question of Digital Wallets and Interest Rates

The rift between Prime Minister and Finance Minister Srettha Thavisin and Bank of Thailand (BOT) Governor Sethaput Suthiwartnarueput has escalated beyond mere disagreements on the 10,000 baht digital wallet initiative and interest rates. The rift has evolved into a broader contention about who controls Thailand’s economic direction and whether their claim to this power is legitimate.

The dispute originated last September when Sethaput openly voiced concerns over the government’s digital wallet initiative and debt relief measures. He cited the need for fiscal stability to avert the potential risk of a credit rating downgrade. Instead of a blanket distribution to all Thai citizens aged 16 and above, Sethaput advocated for targeting financial support to those in urgent need. Sethaput’s stance was clear: the priority should not be to spur consumption, which has already shown an upward trend, but to stimulate investment. Shortly thereafter, ninety-nine economists and academics, including two former BOT governors, rallied behind Sethaput in opposing the government’s policy on similar grounds.

At the heart of the dispute is a debate about who sets the direction for the economy. Sethaput maintains that the perceived rift represents “creative tension” arising from the distinct yet complementary roles that the BOT and the government play in managing the economy. The BOT is primarily concerned with monetary policy and fostering long-term financial stability, while the government handles fiscal policy and broader economic strategies, tackling more immediate challenges as demanded by its democratic mandate.

Claiming to have taken the critiques of the digital wallet scheme into account, Srettha announced on 10 November a scaled-down version of the policy, which narrows the eligibility criteria to individuals earning less than 70,000 baht (US$1,970) per month and having less than 500,000 baht (US$14,000) in bank deposits. To fund the policy, which would require about 500 billion baht (US$14 billion), Srettha also unveiled a plan to propose a bill to Parliament for special off-budget borrowing. This deviates from the Pheu Thai Party’s original plan submitted to the Election Commission.

In response to criticisms questioning the viability of this new plan, Srettha attributed the recommendation to fund the initiative through government borrowing to Sethaput. However, other reports suggested that Sethaput’s advice may have been taken out of context or misinterpreted. It was originally raised when Sethaput voiced concerns about the government’s alternative plan to exploit a loophole in Section 28 of the State Fiscal and Financial Discipline Act of 2018 in order to borrow from state-owned banks.

Instead, Sethaput proposed seeking parliamentary approval for a bill, emphasising the need to verify its legal standing under Section 53 of the fiscal law. This law stipulates that special borrowing outside the annual budget is only permitted for addressing urgent challenges that constitute a national crisis. Sethaput’s recommendation was a call for legal clarity and parliamentary oversight. It was not an endorsement of the government’s policy or the plan to finance it through government borrowing.

…the government has yet to offer a convincing rebuttal to Sethaput’s assertion that Thailand’s economic challenges are structural in nature, stemming from weakened manufacturing exports to China and reduced tourist spending, rather than from low consumption. These issues cannot be resolved with a one-time 500 billion baht stimulus or a rate cut.

As the lack of policy coordination between the BOT and the government became increasingly apparent, Sethaput faced mounting pressure to lend credibility to the government’s portrayal of the economic situation as dire and warranting special borrowing. After all, the BOT’s stance could significantly impact the government’s efforts to rally support in Parliament and preempt potential legal challenges to its policy by regulatory bodies like the Office of the Council of State and the National Anti-Corruption Commission.

With the policy stalled, the BOT became the perfect political scapegoat mostly due to what the institution has come to represent over the last two decades: a cadre of ivory tower technocratic elites complicit in a broader conspiracy with other authoritarian-leaning institutions to sabotage democratically elected governments’ efforts to steer the economy. That economy, Srettha insists, remains in a critical state for which the digital wallet policy now stands as the sole and essential remedy, if only the BOT and other agencies would recognise its potential rather than dismissing it as yet another Thaksin-style handout.

This emerging populist narrative pits the government against elite technocrats in the central bank accused of hindering equitable economic progress. This narrative has gained traction in light of the BOT’s decision to maintain its policy interest rate at a decade-high of 2.5 per cent, despite reports of low inflation and commercial banks reaping astronomical and undue profits, which were attributed to high interest rates.

Against this backdrop, Sethaput’s refusal to heed the prime minister’s repeated calls for rate cuts has been framed as not only misguided but also unjust. Some critics even interpreted the BOT’s stance as a symptom of its formal independence, which paradoxically granted it freedom from accountability and left it vulnerable to politicisation by unelected forces in Thailand. The argument is compelling, at least superficially: a central bank governor, appointed under a military-dominated government and with only a year left in office, along with an oligarchic seven-person Monetary Policy Committee responsible for setting interest rates, should not have the authority or legitimacy to obstruct the government’s efforts to steer the country’s economy.

The problem is that this concern, however valid, overstates the extent to which this government has Thais’ best interests at heart while implying that the BOT does not. In this particular case, there is no evidence to confirm that the alleged politicisation of the central bank is the reason behind its actions. If anything, the central bank may simply be fulfilling its mandate by avoiding hasty rate cuts that could trigger more capital outflows and further weaken the Thai baht — a view also shared by the World Bank.

What we do know for certain, however, is that the government has yet to offer a convincing rebuttal to Sethaput’s assertion that Thailand’s economic challenges are structural in nature, stemming from weakened manufacturing exports to China and reduced tourist spending, rather than from low consumption. These issues cannot be resolved with a one-time 500 billion baht stimulus or a rate cut, both of which would have unintended consequences for household debt and fiscal stability.

The only crisis these proposed economic solutions seem to be addressing is a legitimacy crisis of Pheu Thai’s and Srettha’s own making — a predicament brought upon themselves by forming a controversial alliance with military-backed parties and the conservative establishment. Ultimately, the burden of proof now lies with the government, not the central bank, to demonstrate its genuine commitment to improving economic welfare, rather than merely chasing quick wins or false economic miracles for the sake of holding onto power.

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