Bank Of Thailand Hamstrung By Debt: Critics

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BOT hamstrung by debt: Critics

Wichit Chaitrong

The Nation

Pridiyathorn, Korn say decrees could be unconstitutional; urge government to give assurances to depositors

The Bank of Thailand (BOT) has little room for manoeuvre when it comes to the Financial Institutions Development Fund (FIDF) debt, as any drastic action by the bank could adversely affect the economy, two prominent critics of the government's handling of the issue said, adding that the Finance Ministry must make clear to depositors that their savings are protected.

Former finance minister and ex-central bank governor Pridiyathorn Devakula and shadow finance minister Korn Chatikavanij also warned that the Constitution Court might strike down three executive decrees related to the government's plan as the issue is not an emergency. Of the decrees, one covers the management of the Bt1.14-trillion FIDF debt, one authorises the government to borrow Bt350 billion, and one requires the central bank to provide soft loans of Bt300 billion for post-flood reconstruction.

Pridiyathorn yesterday said the BOT should not collect too-high premiums from banks, as they would pass the costs on to depositors or borrowers, which would adversely affect the economy.

"Bankers will not let their banks fail, so they will pass costs on to depositors or borrowers if the central bank collects more premiums from them," he said of the executive decree requiring the central bank to pay debts of Bt1.14 trillion owed by the FIDF since the 1997 financial crisis.

Currently, banks have to pay annual premiums of 0.4 per cent of total deposits to the Deposit Protection Agency (DPA). The DPA's duty is to pay compensation to depositors if their banks collapse.

Under the executive decree, the DPA's funds could be used to pay the debt of the FIDF. Pridiyathorn suggested the Finance Ministry should make clear that it would step in to provide adequate funding for the DPA in the case of a bank run.

"We should maintain the concept of limited guarantee under the DPA's operations, as it is necessary to impose discipline on both banks and depositors," said Pridiyathorn, referring to past governments' blanket guarantees, which resulted in high costs for taxpayers, particularly costs incurred from the rescue of financial institutions during the 1997 financial crisis.

Pridiyathorn also said that part of the bank's international reserves might be managed for investment in order to generate returns for use in the debt payment.

He said that although the international reserves are currently worth about $190 billion (Bt6.04 trillion), the central bank faces exchange-rate losses. The bank uses about $125 billion-$130 billion to intervene in the foreign-exchange market, largely to keep the baht weak against the US dollar in support of the export sector. The operation results in losses whenever the baht appreciates against the dollar.

Of the reserves, about $41 billion is currently used to back up baht printing for circulation in the economic system, he said.

"There is little room to make use of the reserve…$28 billion might be available for investment [to generate returns for use in debt payment]. The Finance Ministry and central bank have to consult with each other," he said.

But when the economy expands, the central bank needs more foreign assets to back up the printing of more baht for circulation, Pridiyathorn said.

As the debt of the FIDF remains a public debt under the final decree, Pridiyathorn said it may not be necessary to issue an executive decree in relation to the FIDF debt. There is a strong possibility that the Constitution Court would cancel it, he said.

Meanwhile, Korn said the opposition would next week petition the Constitution Court to interpret whether the decrees relating to the FIDF debt and to borrowing new funds are in violation of the Constitution. He said the opposition did not see a reason for issuing the decrees, adding that the government should present a bill on new loans to Parliament to ensure transparency.

Korn said he did not agree with the government's decision to issue a decree requiring the central bank to provide soft loans of Bt300 billion to flood victims, either. The government could assign the Government Savings Bank to do that job, he said. The executive decree would force the central bank to print money, which would affect investor confidence and could lead to higher inflation, he said.

"Insights from those who are well-versed in these issues - Pridiyathorn and Korn - would provide crucial information for the Constitution Court to consider whether the executive decrees breach the Constitution," said Prasit Kowilaikul, a member of the Council of State, the government's legal advisory body.

-- The Nation 2012-01-13

[Bakseedaa]

When a certain convict is running this government from Dubai, what should the people of Thailand expect... Reap what you Sow...!

[nbm47]

Its 1997 all over again, with interference by governments in BOT affairs, looking forward to the 70 baht to the pound in the not too distant future.

[geriatrickid]

The issues of the FIDF Bank debt were inherited by the government. The logical move would have been to ask the banks to pay higher premiums years ago. These banks which have historically aligned themselves with the ruling military juntas and the Democrats have a vested interest in complaining.

Mr. Korn feigns concer. Ok, why then didn't he address the FIDF debt issue when he had a chance? Now that a former BoT Governor is the finance minister, it is to be expected that there will be action. The other amounts mentioned are minor in comparison to the FIDF debt related to the bank support.

A fiscal conservative would demand that the banks pay up as the industry caused the debt with their business practices and they have to take responsibility for their actions.

A social democrat would demand the banks pay up as the FIDF is tantamount to corporate welfare.

It will be interesting to see if the Finance Minister has the backing and strength to stand up to the banks. He's a heavy hitter as a former BoT governor and his position is common policy in many of the countries that have stable banking systems such as Sweden and Canada.

[BlackJack]

as the Chinese say = may you live in interesting times.

[Ned]

Seize all foreigners' bank accounts and freeze visa renewals. That ought to help the banks' bottom line.

[billd766]

The issues of the FIDF Bank debt were inherited by the government. The logical move would have been to ask the banks to pay higher premiums years ago. These banks which have historically aligned themselves with the ruling military juntas and the Democrats have a vested interest in complaining.

Mr. Korn feigns concer. Ok, why then didn't he address the FIDF debt issue when he had a chance? Now that a former BoT Governor is the finance minister, it is to be expected that there will be action. The other amounts mentioned are minor in comparison to the FIDF debt related to the bank support.

A fiscal conservative would demand that the banks pay up as the industry caused the debt with their business practices and they have to take responsibility for their actions.

A social democrat would demand the banks pay up as the FIDF is tantamount to corporate welfare.

It will be interesting to see if the Finance Minister has the backing and strength to stand up to the banks. He's a heavy hitter as a former BoT governor and his position is common policy in many of the countries that have stable banking systems such as Sweden and Canada.

I agree with you that Korn should have done something when he had the chance.

Equally so should all of the governments before him should have done the same, or is it double standards once again?

[Moruya]

The issues of the FIDF Bank debt were inherited by the government. The logical move would have been to ask the banks to pay higher premiums years ago. These banks which have historically aligned themselves with the ruling military juntas and the Democrats have a vested interest in complaining.

Mr. Korn feigns concer. Ok, why then didn't he address the FIDF debt issue when he had a chance? Now that a former BoT Governor is the finance minister, it is to be expected that there will be action. The other amounts mentioned are minor in comparison to the FIDF debt related to the bank support.

A fiscal conservative would demand that the banks pay up as the industry caused the debt with their business practices and they have to take responsibility for their actions.

A social democrat would demand the banks pay up as the FIDF is tantamount to corporate welfare.

It will be interesting to see if the Finance Minister has the backing and strength to stand up to the banks. He's a heavy hitter as a former BoT governor and his position is common policy in many of the countries that have stable banking systems such as Sweden and Canada.

As they say in Wales, he who listens badly, understands badly.

Korn stated his concern for 2 things - passing a huge debt to an organization that should not have anything to do with it (BOT) and plunging the country massively into debt.

Korn agreed with some changes that were being proposed.

Personally I think he was very balanced in his views.

[siampolee]

Perhaps if the financial ( among others areas of his expertise ) expert G.K. looked at the role of his hero Thaksin and Thaksins cronies in the 1997 financial meltdown he may well see the truth as to who was ultimately responsible for that meltdown and also who made vast sums of money as a result of the meltdown too.

Now the puppet master is controlling the government the debt bondage can be shifted onto the Thai people, indeed a fine example of democracy Thaksin style. The rich get richer and the poor get poorer and endure debt bondage whilst the financial vultures feed on the carcass of the Thai people as they did in 1997

None so blind as those who do not wish to see. .

Edited January 13, 2012 by siampolee

[geriatrickid]

The issues of the FIDF Bank debt were inherited by the government. The logical move would have been to ask the banks to pay higher premiums years ago. These banks which have historically aligned themselves with the ruling military juntas and the Democrats have a vested interest in complaining.

Mr. Korn feigns concer. Ok, why then didn't he address the FIDF debt issue when he had a chance? Now that a former BoT Governor is the finance minister, it is to be expected that there will be action. The other amounts mentioned are minor in comparison to the FIDF debt related to the bank support.

A fiscal conservative would demand that the banks pay up as the industry caused the debt with their business practices and they have to take responsibility for their actions.

A social democrat would demand the banks pay up as the FIDF is tantamount to corporate welfare.

It will be interesting to see if the Finance Minister has the backing and strength to stand up to the banks. He's a heavy hitter as a former BoT governor and his position is common policy in many of the countries that have stable banking systems such as Sweden and Canada.

I agree with you that Korn should have done something when he had the chance.

Equally so should all of the governments before him should have done the same, or is it double standards once again?

Unfortunately, Mr. Korn gets tagged with the mess. The TAMC negotiations were started back in 2001 and should have been revisited towards 2006-2007. Unfortunately, the coup got in the way. Mr. Korn inherited a steaming pile of poop as finance minister. It's the TAMC deal that's the killer here. The TAMC arrangement reflects "asset manager" strategies typical of the investment houses that characterized the "Wall Street" and European financial crises. Asset swaps and the purchasing of bad loans is standard investment fund risk management strategy. The Thai approach IMHO did not fully reflect the severity of the debt crisis and was a gamble. It is a gamble an investment manager might take, but a Bank of Thailand governor would resist. One is willing to embrace risk, while the other is risk averse. The current finance minister has a conservative approach to debt and risk, whilst Mr. Korn had a more liberal approach. The Korn strategy works in a healthy booming economy, but will more often than not demonstrate weaknesses when times are tough. Mr. Korn's position was the prevailing sentiment at the time and many foreign ministers of finance had similar views. However, we now see that managing government debt cannot be treated in the same manner as investment houses manage their funds. The finance ministers of Sweden, Canada, and the Netherlands did not have those views and that is why their banking systems are fairly healthy. The current finance minister has more in common with the aforementioned disciplined strategies than he does with the loosey goosey strategies of Italy, Spain and the USA under Bush.

[geriatrickid]

Perhaps if the financial ( among others areas of his expertise ) expert G.K. looked at the role of his hero Thaksin and Thaksins cronies in the 1997 financial meltdown he may well see the truth as to who was ultimately responsible for that meltdown and also who made vast sums of money as a result of the meltdown too.

Now the puppet master is controlling the government the debt bondage can be shifted onto the Thai people, indeed a fine example of democracy Thaksin style. The rich get richer and the poor get poorer and endure debt bondage whilst the financial vultures feed on the carcass of the Thai people as they did in 1997

None so blind as those who do not wish to see. .

The crisis in Thailand was not isolated and involved the entire region. Do not revise history to suit your agenda.

This is one benefit of the coup for Thaksin. Had he remained in office, he probably would have gambled like Korn. Instead, he was removed from the problem and it became someone else's mess to deal with. Maybe the Thaksin government would have treated it the same or differently. Who knows, but he wasn't around to make the deal. The military junta didn't deal with it and just tossed it about like a hot potato.

My point here is that the problem reflects the 2 schools of thought, and I am of the view that the fiscal discipline as shown by the current finance minister is the most appropriate strategy. The Korn strategy is what got many countries into the fiscal mess. It's what he learnt in MBA school and what he did back when he was an investment fund analyst and manager.

[whybother]

Unfortunately, Mr. Korn gets tagged with the mess. The TAMC negotiations were started back in 2001 and should have been revisited towards 2006-2007. Unfortunately, the coup got in the way. Mr. Korn inherited a steaming pile of poop as finance minister. It's the TAMC deal that's the killer here. The TAMC arrangement reflects "asset manager" strategies typical of the investment houses that characterized the "Wall Street" and European financial crises. Asset swaps and the purchasing of bad loans is standard investment fund risk management strategy. The Thai approach IMHO did not fully reflect the severity of the debt crisis and was a gamble. It is a gamble an investment manager might take, but a Bank of Thailand governor would resist. One is willing to embrace risk, while the other is risk averse. The current finance minister has a conservative approach to debt and risk, whilst Mr. Korn had a more liberal approach. The Korn strategy works in a healthy booming economy, but will more often than not demonstrate weaknesses when times are tough. Mr. Korn's position was the prevailing sentiment at the time and many foreign ministers of finance had similar views. However, we now see that managing government debt cannot be treated in the same manner as investment houses manage their funds. The finance ministers of Sweden, Canada, and the Netherlands did not have those views and that is why their banking systems are fairly healthy. The current finance minister has more in common with the aforementioned disciplined strategies than he does with the loosey goosey strategies of Italy, Spain and the USA under Bush.

Yes ... the Korn strategy obviously didn't work during the GFC while he was Finance minister. The Thai economy went tits up during Korn's time. Obviously ....

[animatic]

When you have arguably the best financial brains in Thailand Pridiyathorn and Korn

who have worked, for BOTH sides of the political divide,

and are noted for some of the most lucid analysis' of Thailands standing financially

and in relation to the world economy are in perfect agreement then,

what they agree on is like a solid truth.

Yet again this government, of the person, by the person, and for the person,

is SCREWING THE PEOPLE long term and the following generation to boot.

Remember:

this debt they are wrangling about was refinanced by Thaksin

for extra long time, but removing external scrutiny of his financial dealings with government funds,

and was REPEATEDLY told to the public as paid off and done with,

the Thaksin legend saying HE paid if off,

BUT IT HAS RETURNED!!!

And Thaksin was there when the need for this HUGE debt was created in '97,

as DPM behind PM Chavalit the creature from the financial lagoon.

Currently PTP MP Chavalit.

(ret. General of the 'Free Thailand Liberation Army' deceased)

Most all lost their shirts from the '97 crash Thaksin came out richer.

Pridiyathorn and Korn in unison is a damning critique.

[cdnski12]

The simple answer is that the Thai Govt needs to get back into the lucurative Narcotics Trade, which they sucessfully ran for 300 years. Sloppy management (and a traitorous US Army) sabotaged this once flourishing industry, by moving it to Afghanistan & Pakistan. Hard times have fallen on the Burmese Border and the former Golden Triangle Areas of N/W Thailand. Virtually no (legal or illegal) tax revenue is derived from the Narcotics Industry. Opium farmers are reduced to growing commodities such as Rice, Corn, Sugar Cane & Rubber Trees. Diversification into the YABBA Trade, eeks out a precarious living for a limited number of Investors. Perhaps the Thai Army can take over the Thai Govt again and re-invigorate the Narcotics Trade. This will give the Army Truckers something to do and garner Billions of USD from the stupidly gullible US DEA, currently engaged in nefarious activities in the Nong Khai Area.