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Ministers face off over debt

Business reporters

The Nation

Thirachai sides with BOT chief against Kittiratt's plan to transfer FIDF liabilities

The wrangling between the Yingluck government and the Bank of Thailand (BOT) over the Bt1.14-trillion bank-bailout debt grew murkier yesterday, as the first round ended with Finance Minister Thirachai Phuvanatnaranubala siding with the BOT to fend off the government's bid to pass on the huge debt to the central bank.

Thirachai and Kittiratt Na-Ranong, the deputy premier overseeing the economy, have drifted far apart on the issue, with the latter insisting on implementing the government's controversial plan to have the central bank take responsibility for both the principal debt and interest expenses of the Financial Institutions Development Fund (FIDF), the central bank's rescue arm.

This could be a prelude to Thirachai's departure from the Yingluck Cabinet, and the future of BOT Governor Prasarn Trairatvorakul is now also uncertain.

Thirachai said after yesterday's meeting with Kittiratt and Prasarn that the government would consider using funds from the Deposit Protection Agency (DPA) to pay a portion of the interest on the huge public debt.

The Bt1.14-trillion debt was incurred during the 1997 financial crisis, when the FIDF was ordered to bail out failed commercial banks and finance companies to protect depositors.

Over the past several years, the debt has cost the government annual interest of Bt45 billion-Bt65 billion, shrinking its budget for investment schemes.

On Tuesday, the Yingluck Cabinet agreed in principle to transfer the Bt1.14 trillion debt to the central bank.

Dr Virabongsa Ramangkura, chairman of the government's post-flood strategic committee for reconstruction and future development, said the transfer would lower the country's public debt-to-GDP ratio, which currently stands at 40 per cent, allowing more state borrowing to finance mega-projects

But Prasarn strongly opposed the move, saying it will worsen the BOT's financial status, affecting its duties and performance.

The move would also undermine international investors' confidence in Thailand's central bank, according to Prasarn.

Thirachai is also opposed to the debt transfer, reasoning the central bank's monetary discipline will be greatly affected, as the move is equivalent to "printing money" to finance government spending.

He issued a strongly worded statement to that effect following Kittiratt's threat to seek passage of a law compelling the central bank to take over the FIDF debt.

Regarding the interest on this debt, Thirachai said it would be possible to use the DPA's levy of 0.4 per cent on all deposits in the country - totalling Bt30 billion per year - to reduce the government's burden.

At present, the government has to set aside an annual budget of Bt45 billion to pay interest on the FIDF debt.

Thirachai said it would also be possible to empower the FIDF to collect an additional fee from banks and other financial institutions to cover the rest of the interest expense. This would mean banks could not lower interest rates for borrowers, as the government wants.

Despite the finance minister's statement, Kittiratt, who heads the Yingluck government's economic team, insisted yesterday that the government's policy is to have the central bank take responsibility for both principal debt and interest expenses of the FIDF.

Kittiratt said this would be done while adhering to the conditions that there would be no printing of money, no negative effects on the country's international reserves, and no additional burden on the state budget.

Laws would be amended to facilitate implementation of this policy so that the government has more financial resources to invest in infrastructure mega-projects and other important schemes, especially in the wake of the country's worst floods in decades, he said.

-- The Nation 2011-12-31

[Farang0tang]

Me thinks there is a word missing:

".....more financial resources to invest in infrastructure mega-trough-projects...."

[TomTao]

Hasn't foreign investment already taken a bit of a hit with some foreign companies moving elsewhere after the recent floods, not to mention the economic impact of the flooding, if the government succeeds in this plan to pass on the debt to the BOT, and foreign investors decide Thailand is too much of an investment risk? Then the Thai economy could be in real trouble, high spending coupled with minimal financial reserves has the potential to spell disaster if the global economy heads south again.

[khunken]

Methinks this is a skewed report. The other paper reports that the ministers & the BOT have reached a compromise - although it appears more of a back-down by Kittiratt. The result is reported as leaving the FIDF debt with the Finance Ministry and getting the banks to help finance the debt interest. Not a great outcome for the bank's customers.

[MILT]

I can pretty much know that the PTP supporters/voters have no clue about all this financial manipulation and wrangling and will be adversely effected whatever the outcome. There is no money for these mega projects and the skimming that will take place. Pretty sad development