Govt Debt Policy Will Make The Thai Currency 'Worthless'

[webfact]

Govt debt policy will make the currency 'worthless'

Wichit Chaitrong

The Nation

Opposition warns about dangers of printing money to fund spending plans; slams neglect of flood victims

The government move to force the central bank to print money for paying off public debt would reduce banknotes to worthless paper, the opposition warned yesterday.

The government has cut Bt43.43 billion from some projects and used the funds to finance other projects, including water-resource management, transport projects and supporting villages and local governments, Deputy Prime Minister Kittiratt Na-Ranong said yesterday. He was speaking during the second reading in Parliament of the 2012 Budget Bill, with proposed government spending of Bt2.38 trillion, and a deficit of Bt400 billion.

Opposition leader Abhisit Vejjajiva criticised the government expenditure plan for fiscal 2012 for not responding to the needs of flood victims. He said the government had not cut unnecessary spending and was not focusing on the much-needed areas. He also vowed to petition the Constitution Court if the government issues an emergency decree to borrow funds without proper reasons.

During the debate, Democrat MP Sansern Samalapa charged: "The government's plan to force the central bank to repay the debts of the Financial Institution Development Fund would result in the printing of more money for the government."

He was referring to the government's efforts to shift public debt of Bt1.14 trillion to the Bank of Thailand's account, as it wants to borrow more money to finance the large budget deficit.

The government plans to borrow Bt400 billion to finance the budget deficit in fiscal 2012 and plans to borrow another Bt400 billion to finance post-flood restoration projects.

"Suppose the government takes an extreme position by asking the central bank to print money to finance government expenditure of Bt2.38 trillion? People would be happy for a while, for there would be no need to pay taxes, but then the banknotes would become worthless paper," he warned.

Such measures were implemented by some governments in Latin America and they experienced hyperinflation and the collapse of their economies, he said.

Sansern also did not agree with the government's plan to force the BOT to provide soft loans amounting to Bt300 billion for flood victims' recovery from the disaster, particularly small and medium-sized enterprises and households.

The loans would fuel inflation, and that would adversely affect people. He said the government's move requiring commercial banks to pay more fees to the Deposit Protection Agency would push up the lending rate, adversely affecting borrowers. He opposed plans to use funds accumulated by the DPA to repay public debts.

Former finance minister Korn Chatikavanij expressed concern over the ballooning public debt. "The government must tell the public when it will stop borrowing and have a balanced budget," he said. The current government plans to repay only Bt1.4 billion of the public debt for fiscal 2012, which is too small compared with the previous Democrat-led government's debt payment of Bt45 billion annually, he argued.

He also accused the government of lack of transparency in the Bt120 billion in spending earmarked for post-flood recovery in fiscal 2012.

"Of the total amount, details of projects are available only for Bt48 billion," he said. The conflict between the government and the central bank on public-debt payment has also eroded public and investor confidence in the economic management of the country, Korn said.

He also charged the government with being unprepared for the possibility of higher interest costs on public debt. The current cost is 4.8 per cent of the public debt of Bt4 trillion, with debt equivalent to 41 per cent of gross domestic product. A rise of 1-2 percentage points in the interest rate would cost dearly, Korn warned.

He said government revenue was likely to decline because of the corporate-tax cut and tax break for diesel users. The opposition has called for some budget cuts, arguing that there are only eight months left in the current budget period and the government will likely not meet the spending target.

Parliament is expected to vote on the third reading of the bill tomorrow.

Meanwhile, the government is going to issue four new legislations to manage public debt of close to Bt2 trillion, or about 20 per cent of gross domestic product, as part of efforts to restore the economy affected by severe floods last year.

The Cabinet yesterday approved in principle the issuing of four new laws, but it was not yet sure whether the government would issue an emergency decree or normal laws through parliamentary procedure, Deputy Government Spokesman Chalitrat Chandrubeksa said yesterday after the Cabinet meeting.

The government will consult with related parties, he said.

Deputy Prime Minister and Commerce Minister Kittiratt Na-Ranong proposed to the Cabinet to issue emergency degrees for the transfer of the Bt1.14-trillion debt owed by the Financial Institutions Development Fund (FIDF) to the Bank of Thailand as the government wanted to reduce its annual budget burden for debt repayment.

Kittiratt also wanted the government to issue an emergency decree to order the central bank to provide soft loans of Bt300 billion to support small businesses and households affected by floods. Next is an emergency decree to borrow Bt350 billion for restoring the economy. The fourth decree is to create an insurance fund pool of Bt50 billion, aimed at assuring foreign insurers to accept reinsurance from Thailand.

Finance Minister Thirachai Phuvanatnaranubala yesterday told the opposition during the 2012 Budget Bill debate that the government is urgently in need of funds for investment in the post-flood recovery.

He said the FIDF debt previously created an annual budget burden of Bt65 billion for interest rate payment, which has now dropped to Bt45 billion.

The burden limits the government's ability to borrow for financing new investment projects needed after the floods, he said.

He assured them that the government will not force the central bank to print money to repay public debts.

"We'll not damage monetary and fiscal discipline," he said.

Thirachai said the current public debt, currently equivalent to about 40 per cent of GDP, is not high and it is manageable.

-- The Nation 2012-01-05

[KKvampire]

The Tha baht is already overvalued.more borrowing and printing money alongside inflation will make the financial markets finally see this.

Posted with Thaivisa App http://apps.thaivisa.com

[Moruya]

Incredible fiscal discipline.

[londonthai]

I wouldn't mind weaker baht, but somehow I don't think there would be anything near 75baht for a £

[bluejin12]

[GeorgeO]

I wouldn't mind weaker baht, but somehow I don't think there would be anything near 75baht for a £

With the greater financial discipline within the UK, and the strong sense of urgency, as well as sound policies, for overcoming its current problems - far more than within the EU - there is no fundamental reason why we should not see the heady days of THB 75 to the GBP once again.

[kennalder]

All Fiat currencies are going to engage in a "race to the bottom" to protect exports (Emerging economies.) and to pay off debts (Western, developed nations.) Hard to tell who will "win" the race, but get ready for inflation, perhaps hyperinflation.

[skorchio]

A weakening Baht by this instrument (printing) will not really lead to more B for your $, €, £ cos inflation will swallow most of the depreciation. If you want to know how to find those pound and euro symbols on a mac, just google them, like I did

[manarak]

The Tha baht is already overvalued.more borrowing and printing money alongside inflation will make the financial markets finally see this.

Posted with Thaivisa App http://apps.thaivisa.com

it's not...

but am I the only to think that a weaker baht is not a bad thing?

[blackthorn2005]

About time to, no more 'Monopoly'.

[HOOD Robin]

Incredible fiscal discipline.

This is only possible in Thailand

Printing more money for such reasons. The only thing will happen is that more millions will stick to some fingers of bastards who don't really care about sending funds to people who really need it. This are really scrupulous b*st*rds, mostly housing in Parliament

[Greenside]

Weaker baht:

Good for Export

Good for Tourism

Costly if oil subsidies are to be maintained

If fuel for transport and cooking rises then we'll all feel the pinch.

[anchan42]

I wouldn't mind weaker baht, but somehow I don't think there would be anything near 75baht for a £

With the greater financial discipline within the UK, and the strong sense of urgency, as well as sound policies, for overcoming its current problems - far more than within the EU - there is no fundamental reason why we should not see the heady days of THB 75 to the GBP once again.

Financial discipline and mutiple rounds of QE policy don't go well together in my head. Besides the goverment has not said anything about printing more money. It just the oppsition cries wolf again I think....

[hellodolly]

"supporting villages and local governments,"

Is that the reason the villages became red so that they would not have to be self supporting?

[Xonax]

Amazing Zimbabwe Thailand!

I look forward to be a trillionaire someday soon

Edited January 5, 2012 by Xonax

[whybother]

Financial discipline and mutiple rounds of QE policy don't go well together in my head. Besides the goverment has not said anything about printing more money. It just the oppsition cries wolf again I think....

If the debt is passed over to the BOT, how do they pay for it? By printing more money or selling of foreign currency reserves.

[robkey69]

I would love to see the Thai baht slide a little....its been way overvalued based on the economic climate in Thailand....40-45/USD would be about right....but I don't think it will return to 57 like the late 90's would be great for me... 45 baht Singha's again..

[khunkeith]

When I first starting coming to Thailand regularly, there were 44 THB to the $. my friend, that was stationed at the US base in Udon in the early 70s told me there were 2 THB to a nickel so that works out to 40 THB to the $. The lowest point for exchange I remember was about 2005-2006 when there were about 26 or 27 THB to the $. Naturally, that's when my house was under construction.

[rotary]

They can consult with the USA, they know how to print money at extreme fast rates. I guess the Thai Baht will race the US $ to the bottom

[kalbo123]

Thai debt is very low if you compare it with western countries... and they still hold a lot of foreign reserve , so a BS story!

[taff33]

Strange that when they are not in goverment they know how to run the country,when they are in charge they don't have a clue,not only in Thailand but also the UK and many other countrys.

[cowslip]

As ever Thai politics resorts to simplistic overstatement...as if that is the only factor.

however it is refreshing to see the opposition actually performing its democratic role; that of criticising government policies.

They might even put forward some ideas of their own at some point.

all this is much healthier than the endless rounds of pointless legal wrangling.

....and in a few months when the baht is still holding its value we can all look back and laugh at the statement.........(or not as the case may be?)

[philhal2]

Does nothing other than prove that like everything else MANY people think everything is free and never has to be earnt or accounted for , but can just be taken without repercussion .

[recycler]

As long as there is enough foreign currency coming in to Thailand we can print a lot of Baht. Thailand easily lands a billion US$ a month on money sent by Thai living abroad, farang spending a foreign pension or income here and the inccidental girlfriends getting some support. This comes at virtually no expense what soever. On top of that there is, even after the floads, a lot of export that is generated at by now even lower wages than in China. Dream on about a lower Baht, this won't happen any time soon!

[moe666]

It looks like PTP plan on buying the next election a bit early.

[david555]

A good thought , reading this by breakfast time .......wish it would be true

[geriatrickid]

They can consult with the USA, they know how to print money at extreme fast rates. I guess the Thai Baht will race the US $ to the bottom

Perhaps some of the doom and gloom views might change if the respondents took into consideration the characteristics of the Thai economy. As some astute people have noted Thailand is an export driven economy. What part of 2/3 thirds of the GDP based upon exports do the negative nabobs not understand? When agriculture is a major component and when the sector provides almost 50% of the nation's employment, it reinforces the importance of protecting export markets, even if it means adjusting the value of the baht.

In respect to the unfounded comment on the USD, Perhaps one should have a look at the numbers. Rather than rely on FOX TV for information, I suggest one look to a FOX sister company, the Wall Street Journal . I love Thai Airways because I can always get a copy of the WSJ which is practically unavailable in Phuket.

WSJ reported as follows; After a year of swings, the U.S. dollar finished within roughly 3% of where it started the year against most major developed-market currencies. That included the euro, where the dollar finished up 3.3% as the long-simmering European debt crisis reached a boiling point and investors contemplated the breakup of the economic union that underpins the common currency.The main exception was the yen, which, despite a raft of troubles for Japan, rose more than 5% against the dollar. The U.S. Dollar Index, which measures the greenback's performance against a basket of currencies, rose 1.5% in 2011.

As long as the EU is in a mess that keeps getting worse, the pressure is on the Euro, not the USD. The US is most likely through the worst of its mess. This gives the Thai baht some breathing room. Keep in mind that China is undertaking direct FX pools and transactions which will assist the Thai baht, albeit in a small way. The USD is ok, provided the Republican teapot faction doesn't pull another tantrum.

[Bakseedaa]

Strange that when they are not in goverment they know how to run the country,when they are in charge they don't have a clue,not only in Thailand but also the UK and many other countrys.

taff...... that says it all...!

[TeddyFlyfisherDavis]

"borrow more money to finance the budget deficit"...Hmmmmm...Let me think on this for a moment...Ok...NOT A GOOD IDEA ...! Look at America...Thailand taking lessons from them...?

[Bobinyangdor]

I wouldn't mind weaker baht, but somehow I don't think there would be anything near 75baht for a £

With the greater financial discipline within the UK, and the strong sense of urgency, as well as sound policies, for overcoming its current problems - far more than within the EU - there is no fundamental reason why we should not see the heady days of THB 75 to the GBP once again.

Gosh George I have to say who on earth do you listen to and more to the point who do believe?

"Greater financial discipline within the UK" has got to be the joke of the decade!

The Brits, and yes I am one, are, along with the Americans the world leaders at how to create financial disaster.

To put it simply: Imagine you have a credit card and every time you run out of money you simply increase your credit limit.. well that's what our wonderful governments just keep on doing and then they give it grand names like Quantative easing. If an individual citizen was able to behave in such an outrageous fashion he would be called a criminal and the fact is there can be only one end result: hyperinflation which will end in a worthless currency.

kennalder has got it right; the whole global financial farce will end with all currencies in a race to the bottom.

The only real currency which will hold it's value is Gold and incidentally Good ol' Gordon Brown sold 60% of UK gold reserves 10 years ago when the price of gold was about £200 per ounce.. It is now over £1,000 and climbing fast every year. That is a loss to the British taxpayer of over £10.5 Billion.

The Thai government on the other hand have been buying gold and now hold over 132 tonnes.

In 1950 the UK had over 2,000 tonnes but now have a tad more than 200 tonnes.

I'm afraid those 'sound policies' you are talking about are not even touching the tip of the iceberg. In fact they are just slowing down a very deeply troubled economy. Meanwhile our good old boys in Government have not really changed their ways at all they continue to stitch up the people and pay off the banksters and their friends in the City. Fortunately their days are numbered.