Decrees Get Thai Constitution Court Approval

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Decrees get court approval

POLITICAL and BUSINESS REPORTERS

THE NATION

BANGKOK: -- Verdict restores confidence but experts warn that it is the quality of the projects that will determine success in flood-prevention

The court verdict yesterday validating the government's emergency decrees restores confidence but the government's success in preventing future flood disasters will depend on the quality of their projects, say economists and business leaders.

Prime Minister Yingluck Shinawatra thanked the court yesterday and pledged to accelerate introduction of both short- and long-term measures to prevent flooding.

The Finance Ministry will soon submit for approval to the Cabinet new premiums for the banks and a timetable for repayment of the Bt1.14-trillion debt of the Financial Institutions Development Fund (FIDF) following the Constitution Court's ruling in favour of the government's executive decrees.

The ministry is also preparing to borrow funds to finance post-flood reconstruction projects under the Bt350-billion borrowing decree, Chakkrit Parapuntakul, director-general of the Public Debt Management Office, said. It may take 25 years to fully repay the Bt1.14-trillion FIDF debt, incurred during the 1997 Asian financial crisis, he said.

Areepong Bhoocha-oom, permanent secretary for finance, said the government was expected to borrow money from the domestic market.

Bank of Thailand Assistant Governor Chanchai Boonritchaisri said the central bank would collect fees at 0.46 per cent of a bank's deposit base, bills of exchange and debentures for payment of the FIDF debt. The commercial banks will also be required to pay a premium of 0.01 per cent to the Deposit Protection Agency, leading to total premiums of 0.47 per cent - up from a current 0.4 per cent.

State-run banks will also have to pay Bt0.47 per cent surcharge.

Meanwhile, Teerana Bhongmaka-pat, dean of Chulalongkorn Univer-sity's Economics faculty, said the court decision would restore public and investor confidence. But the government's success in preventing flooding depends on the quality of investment projects, he warned.

"Most of the government plan involves investment in construction projects to prevent flood disaster. This may result in higher costs and may not be effective," Teerana said, expressing his concern.

He feared that while some parts of the country would be protected, those who stayed outside the flood barriers could still suffer, so overall it might not be of much benefit to the country.

"If projects cannot generate returns as expected, then public debt would be much higher," he said.

On the debt decree, Teerana believed bankers would pass on the costs to depositors and might also take high lending risks for more returns to offset premiums paid to authorities.

Phongsak Assakul, chairman of the Board of Trade of Thailand and the Thai Chamber of Commerce, said the court's ruling has increased confidence that the government would have adequate budget to spend.

He urged the government to take action and set up a clear timeframe for proceeding with flood prevention plans.

Bank of Thailand Governor Prasarn Trairatvorakul warmly welcomed the Court decision. But while the decision will smoothen the shouldering of the fiscal burden, there are worries about the competitiveness of commercial banks against their regional peers.

From a deposit base of about Bt10 trillion, the extra fee of 0.07 per cent would raise about Bt7 billion per annum.

The governor said that regulations involving the surcharge collection would be announced before the collection takes place in the second half. Banks will pay additional surcharges on their deposit base, covering all deposits, bills of exchange and short-term bonds.

Smith Banomyong, executive vice president of Siam Commercial Bank, said the borrowing executive decree would stimulate the economy. On the debt decree, Smith said commercial banks were ready to pay the increased fees of 0.47 per cent.

Former finance minister Korn Chatikavanij, who petitioned the court, said he respected the court's verdict. He said the executive decrees prevent lawmakers from scrutinising the government effectively, as they cannot make changes to them.

-- The Nation 2012-02-23

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Govt move was warranted by the situation: judges

AVUDH PANANANDA

THE NATION

BANGKOK: -- The government came out victorious yesterday after the Constitution Court approved its two executive decrees designed to prevent a repeat of last year's flood crisis.

The nine-member court unanimously ruled that the decree earmarking Bt350 billion to finance flood-control projects was constitutional, though the decree on the Bt1.14-trillion debt management won seven votes. In order to approve or veto a decree, at least six votes are needed.

The two decrees were put under judicial review at the request of the Democrat Party and senators, who argued that the government had no justification to bypass the normal legislative process by enacting a decree instead of through Parliament.

In reaching the verdict, the court outlined the Constitution in terms of sanctioning the legislative process as per Articles 142 to 153 as well as the exception as per Article 184. Although democratic rule prescribes parliamentary scrutiny on the enactment of laws, the government is allowed to issue decrees in order to avert public calamity, the verdict said.

Paragraphs one and two of Article 184 warrants the issuing of a decree if it ensures public safety, economic security and mitigates disaster. The court pinpointed these conditions as the basis for its decision on whether the two decrees were constitutional.

Factual circumstances were also used to determine if the decrees in question met the requirements of Article 184. The two decrees had been passed in the backdrop of last year's flood crisis, when some 2.6 million people were affected and the damage was worth about Bt1.4 trillion.

Economic growth dropped from the forecast rate of 4 per cent to 1 per cent and flood-relief operations cost about Bt130 billion. Furthermore, the country is in no position to suffer a repeat of the crisis because the authorities neglected to implement two flood-prevention plans for the Chao Phraya River basin in 2000.

As for the decree on financing flood-control projects, the government needs to complete its loan arrangements before June 2013. As part of the arrangements, the Finance Ministry needs to present its spending plans justifying the loans to Parliament for scrutiny within 60 days.

The Bt350-billion loans will comprise Bt17 billion for short-term control measures in the Chao Phraya River basin, Bt300 billion for long-term projects and Bt40 billion for flood control in other river basins.

The court ruled that the decree was designed to tackle the crisis and ensure economic security, which met the requirements of Article 184, paragraph one.

Last year's floods affected 841 factories in key industrial estates, inflicting untold damage to the economy and the world supply chain. Without necessary funding for flood-control projects, the manufacturing sector might end up moving overseas.

Besides, the flood-control projects could not be financed under the 2011 national budget, because it went into effect on February 5. Even though the budget has Bt120 billion in unallocated funds, the amount is far less than the Bt350 billion needed. Besides, if the government was to sponsor a supplementary budget bill, it may not be vetted in time for this year's seasonal floods.

As for the decree transferring the Bt1.14-trillion debt incurred by the Financial Institutions Development Fund (FIDF) during the 1997 financial crisis, the court concurred with the government's argument that the debt was a burden and took focus away from flood control.

Over the past 15 years, the FIDF debt cost the country about Bt67 billion in annual interest and successive governments have only been able to pay 15 per cent of the loan. Under the debt-management plan, the Bank of Thailand would assume responsibility and complete repayment within 26 years. This would make at least Bt60 billion available for the government to improve its water management and ensure a stronger economic future.

At present, servicing the FIDF loan amounts to about 60 per cent of the government's investment outlay.

The high court ruled that the debt-management decree linked to the flood-control projects was in line with ensuring economic security, hence it met the requirement of Article 184, paragraph one.

It further decided that there was enough of an urgency to warrant the decree, because the government needed to free up funds to finance flood control starting with the 2013 budget. The decree allows the government to stop servicing the FIDF loans in time for the next fiscal year.

-- The Nation 2012-02-23

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So after 1 month delay flood prevention plans can get back on track? some people will be happy!

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Within constitutional law, OK,

But prudent fiscally and morally correct?

Doubtful on both counts,

but that wasn't what the court was to decided on.