186,000,000,000 Baht!

[george]

Bt186,000,000,000!

BANGKOK: -- That’s the amount ex-BOT governor Rerngchai has been ordered to pay for his role in ’97 baht crash

The Civil Court yesterday found that former Bank of Thailand governor Rerngchai Marakanond had been grossly negligent in his defence of the baht in the 1997 financial crisis, and ordered him to pay Bt186 billion in damages.

Moreover, Rerngchai was ordered to pay interest at a rate of 7.5 per cent, retroactive to July 2, 1997, the day when the central bank floated the baht. On a compound-interest basis, that means he currently owes more than Bt330 billion.

It is the highest damages figure ever fixed against an individual in the history of the Thai Civil Court.

Rerngchai, who has been living a low-profile life after losing his job in mid-1997, did not show up at the Civil Court on Rachadaphisek Road to hear the verdict. He could not be reached for comment yesterday.

But his lawyer, Noppadol Laothong, said Rerngchai would appeal to a higher court.

“When Khun Rerngchai learns about the court verdict, he will certainly feel much pain,” Noppadol said. “He had been trying to do his best to tackle the myriad problems facing the country during that time when the country was on the verge of collapse. Tackling any problems would have to get approval from the government.”

Rerngchai was charged with recklessness and severe negligence in his management of foreign-exchange policy during the period leading to the July 2, 1997 devaluation of the baht.

The Bank of Thailand depleted its foreign-exchange reserves of between US$36 billion (then Bt900 billion) and $38 billion in a matter of six months before floating the baht and later seeking a $17.2-billion bailout package from the International Monetary Fund. The Thai economy was then in a full-blown crisis.

In 2001, the Bank of Thailand - under the present governorship of MR Pridiyathorn Devakula - and the Exchange Equalisation Fund, a foreign-exchange management unit of the central bank, lodged a suit against Rerngchai, both at the Administrative Court and the Civil Court. They charged that he had managed foreign-exchange policy with gross negligence, resulting in huge damage to the central bank - amounting to Bt186 billion in foreign-exchange losses - as a result of the baht devaluation.

In November 2003, Rerngchai triumphed in the Administrative Court over the charges brought against him by the Exchange Equalisation Fund that he managed the baht with gloss negligence when he floated the currency. This prompted speculation then that the Civil Court might reach a similar decision by throwing out the Bt186-billion suit against him.

But the Civil Court yesterday ruled against Rerngchai because he had failed, at the time, to pay heed to a policy signal from the Finance Ministry that the fixed exchange-rate regime should be changed.

The baht, then fixed at around Bt25 to the US dollar, was overvalued. Exports were tumbling, the real estate market was in a shambles, the stock market was melting down and finance companies and banks were crashing. The current-account deficit hit 8 per cent of gross domestic product and the country’s foreign debt reached more than $100 billion.

Amnuay Viravan, the former finance minister, and MR Chatu Mongol Sonakul, the former permanent secretary for finance, both testified to the court that they had suggested that the exchange-rate regime should be changed to a more flexible one.

The court said in its verdict that if Rerngchai had gone along with the Foreign Exchange Act of BE 2501, which authorised the finance minister to change the foreign-exchange regime at any time upon the recommendation of the Bank of Thailand, the crisis situation would have been averted.

“But the defendant failed to respond [with a recommendation for a change in the foreign-exchange regime] by making an excuse that the country was not ready yet and that foreign debt would have gone up,” the court said.

Moreover, the court said Rerngchai had made the excuse that the management team at the central bank had never reached any decision on the change of the foreign-exchange regime.

The court referred to the testimony of Dr Chaiyawat Wibulswasdi, who said that as deputy governor of the central bank, he had arranged a meeting on June 21, 1997 with the top officials of the central bank to agree on the flotation of the baht.

The top officials were Dr Siri Garncharoendee, assistant governor; Tanya Sirivekhun, assistant governor; Bandid Nijathaworn, director of the Banking Department; Kleothong Hae-trakul, director of the Research Department; and Phaiboon Kittisrikangwarn, who headed the central bank’s dealing room.

Chaiyawat testified that he had told the meeting it was time to change the foreign-exchange system because there were few foreign reserves left.

Chaiyawat also told the court that he had arranged the meeting without notifying Rerngchai, whose presence, he said, would have made it difficult to convince the top officials of the need to change the foreign-exchange regime.

Given all the testimony and evidence, the court ruled that Rerngchai had committed gross negligence, to the extent that the central bank’s foreign-exchange reserves went into deficit and it had to come up with $15.774 billion to fulfil its foreign-exchange swap obligations.

All in all, the Civil Court went along with the Bank of Thailand’s suit that foreign-exchange operations under Rerngchai’s governorship had created a loss amounting to Bt186 billion.

--The Nation 2005-06-01

[eljeque]

One more note to add. On June 17, 1997 the Baht rate was 22.3/US$. Yes, that's right. The Baht had strengthened by 10% whent he country's economy was falling apart. Why did the Central bank buy back so many Baht before the crash, all the while the rest of the world was selling them, to the point of strengthening it to 10% more than usual?

I really doubt that this bank governor came up with the idea on his own. Let's see who was able to sell loads of Baht prior to the fall on July 2, and then see if they can pay part of the bank governor's bills.

Was it Chavalit or Barnham who was PM then?

[Heng]

Chavalit... who's only in the current government because someone owes him a favor for the information that led to about 2 Billion in forex profit over the course of 2-3 weeks back in '97.

[rossiok]

Sounds like he rang that bell a few times too many

[Patex]

...Why did the Central bank buy back so many Baht before the crash, all the while the rest of the world was selling them...

Please help me with this,

When "The rest of the world" is selling the THB who have to buy them? Bank of Thailand??

Regards, Patex

[mnoorsapl]

Only one scrape goat responsible for the baht crash!. Unlikely

[Sphere]

Chavalit... who's only in the current government because someone owes him a favor for the information that led to about 2 Billion in forex profit over the course of 2-3 weeks back in '97.

Before the crash

PM = Chavalit

Deupty = Taksin

After the crash

PM = Taksin

Deputy = Chavalit

What exactly has changed?

[Heng]

Chavalit... who's only in the current government because someone owes him a favor for the information that led to about 2 Billion in forex profit over the course of 2-3 weeks back in '97.

Before the crash

PM = Chavalit

Deupty = Taksin

After the crash

PM = Taksin

Deputy = Chavalit

What exactly has changed?

Well, now Chavalit has one less credit in the favor bank.

[SweGuava]

Before the crash

PM            = Chavalit

Deupty      = Taksin

After the crash

PM            = Taksin

Deputy      = Chavalit

What exactly has changed? 

<{POST_SNAPBACK}>

You spelled Deputy right the second time?...