Bank of Thailand : 1.14-trillion-baht debt incurred during the 1997 financial crisis

FINANCE

FIDF deal possible next week
26/01/2011

The Bank of Thailand board hopes to reach a conclusion with the Finance Ministry next week on how to deal with the 1.14-trillion-baht debt incurred from buying bad assets from financial institutions during the 1997 financial crisis, says chairman of the BoT board, M. R. Chatumongkol Sonakul.

He said the central bank will call a meeting with Finance permanent secretary Areepong Bhoocha-oom to explore their options.

During the 1997 crisis, the Financial Institutions Development Fund (FIDF) bailed out several banks and finance companies which suddenly became debt-ridden after the baht had been floated by issuing bonds.

The central bank has since been responsible for repaying the principal of the bonds whenever it makes profit and the Finance Ministry has paid the coupon.

In recent years, however, the central bank has not made much profit and the ministry has become increasingly irritated by the huge amount to interest it had to pay each year, at 60 billion baht last year.

Late last year, both agreed to solve the issue by transferring the FIDF's assets to the ministry to help clear some of the principal. However, both have yet to appraise the assets.

They are now working on drafting the fund-closing bill and seeking a consensus on asset appraisals.

"Actually, both issues [asset evaluation and the draft] are taxpayers' money transferred between two pockets. Personally, I don't think any dispute should arise. We should settle on a solution that benefit the people the most, even though one of us stands to lose," said M. R. Chatumongkol.

Since consolidating the central bank's reserve and currency accounts is not possible, the focus should be on amending the Bank of Thailand Act and Currency Act to allow the central bank to use the yields from currency reserves to clear the principal of the debts.

Currently, the currency reserve stands at 36 billion baht.

"The debt is huge and we can't say it's all the central bank's burden because during the crisis we agreed to create this debt in order to revive the economy. Therefore, we can't expect to clear [the debt] in five or seven years. If we work on the law amendments, I think we could clear the debts in 20-30 years from now and then we need to issue new longer-term bonds to match the repayment period," said M. R. Chatumongkol.

Commenting on the overall economy, the former Bank of Thailand governor agreed with the BoT's policy to focus on taming inflation in line with the regional trend because high inflation would disrupt the economic growth in the long term.

He added that the depreciating Thai baht would benefit the export sector, which will in turn help maintain the economic expansion, even though it will add to inflationary pressures.

As always, the re-emergence of political conflicts will add to the risks.

bangkokpost.com

the problem is the underlying assets are worthless and those fools aren't lowering their prices to sell off those debts to third parties, keeping the obligations instead.

With the strong THB it is even more unlikely that those obligations can be sold off as they become more expensive for overseas investors

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