Thread: 1997 Debt: BoT against passing the buck

Thai-ASEAN News Network

Govt Ponders Law on Finance Fund's Debt Transfer

UPDATE : 29 December 2011

A key economic minister says a law can be drafted that would force the central bank to take over the remaining debt left over from the debt bailout fund set up by the government during the 1997 economic crisis.

Deputy Prime Minister and Commerce Minister Kittirat Na Ranong said that if the Bank of Thailand continues to refuse to take over the remaining debt, worth 1.14 trillion baht, form the Financial Institutes Development Fund, or FIDF, his government would consider issuing an act or decree to force it to do so.

Kiiitrat suggested a law be issued as a means of making way for the wide-open debate on the feasibility of the proposal.

The minister suggested the central bank's position is strong enough to handle the debt given that the government has shouldered the burden for the bank for 14 years, since 1997 when the country's financial system collapsed.

The minister today held a meeting with representatives from the BOT, the Finance Ministry, the Budget Bureau and the National Economic and Social Development Board to discuss the details of the proposed transfer of the FIDF's debt.

The finance minister earlier voiced his disapproval against the transfer plan.

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Bangkok Post : PM: B1.14tn debt not yet transferred

PM: B1.14tn debt not yet transferred

• Published: 29/12/2011 at 03:21 PM
• Online news: Local News

The 1.14 trillion baht debt accumulated by the Financial Institution Development Fund (FIDF) during the 1997 crisis has not yet been transferred to the central bank, Prime Minister Yingluck Shinawatra said on Thursday.


Prime Minister Yingluck Shinawatra: No debt transfer yet

Ms Yingluck said Tuesday's cabinet meeting had only agreed in principle that the FIDF’s debt should be managed by the Bank of Thailand (BoT).

Details on how to go about this would be discussed by officials of the Ministry of Finance, the BoT and the Office of the Council of State, she said.

An informed source at the Finance Ministry said Commerce Minister Kittiratt Na-Ranong will tomorrow morning meet with representatives of the Ministry of Finance, the BoT, the Budget Bureau and the National Economic and Social Development Board to discuss the matter.

BoT governor Prasarn Trairatvorakul yesterday strongly opposed the cabinet's decision to shift the responsibility for the1.14 trillion baht debt stemming from the economic crisis in 1997 from the Finance Ministry to the central bank.

He said it was inappropriate that a huge debt stemming from government policy should be dumped on the BoT, and that it would severely impact the central bank's international credibility and its functioning.

The debt was accrued by the issuing of bonds.

Bangkok Post : Ministry debt relief sought

Ministry debt relief sought

• Published: 4/01/2012 at 12:00 AM
• Newspaper section: News

Deputy Prime Minister and Commerce Minister Kittiratt Na-Ranong will today seek cabinet approval for an emergency decree to ease the burden on the Finance Ministry resulting from a 1.14 trillion baht debt carried over from the 1997 economic crisis.

The debt owed by the Financial Institutions Development Fund (FIDF), a unit under the central bank, is a result of bailouts given to depositors and creditors of failed financial institutions during the crisis.

Since the crisis, the principal on the debt has dropped by 300 billion baht through central bank profits but the Finance Ministry has been saddled with interest payments of up to 65 billion baht a year to cover the rest.

It has not been disclosed whether the debts would be transferred back to the central bank under the decree, a government source said. The Bank of Thailand opposes the debt transfer.

On Dec 27, cabinet members agreed in principle to the debt transfer, with Mr Kittiratt asked to finalise the details with the central bank and the Finance Ministry on Friday.

Prasarn Trairatvorakul, the Bank of Thailand governor, said one conclusion from the Friday meeting was that the public debt would not be transferred to the central bank.

He said the central bank was firm on the principle that the FIDF's liabilities stemmed from government policy, with the central bank serving as just the executor. The debt transfer, if it happened, would put the central bank's capital fund in the red, undermining its sovereign credit standing.

Bangkok Post : Govt shifts B1 trillion in debt to BoT

Govt shifts B1 trillion in debt to BoT

Kittiratt says economic stability won't be hurt

• Published: 5/01/2012 at 12:00 AM
• Newspaper section: News

The cabinet yesterday decided to transfer responsibility for 1.14 trillion baht in outstanding debt from the 1997 economic crisis to the central bank, paving the way for the government to take out hundreds of billions of baht in new loans to fund new investment programmes.

Under a draft decree, the Financial Institutions Development Fund (FIDF) will have direct responsibility for the debt, and gain new powers to impose a charge on local banks of up to 1% of their deposits _ equal to more than 70 billion baht a year _ to help finance the repayments.

The decree also gives the cabinet power to direct the Bank of Thailand (BoT) to transfer funds or assets to a fund set aside for repaying the debt.

• See also: Democrats lash government spending

Kittiratt Na-Ranong, deputy prime minister in charge of economic policy, said the legislation is one of four key laws approved yesterday by the cabinet to provide support for reconstruction and rebuilding in the wake of last year's devastating floods.

The government will also set up a 350 billion baht investment fund for water management programmes and launch a low-interest loan programme to help rebuilding using funds from the BoT and state-owned banks.

The cabinet also approved the set-up of a 50 billion baht fund to offer flood insurance for domestic investors, with additional guarantees offered by the state of up to 200 billion baht.

Mr Kittiratt said the transfer of the FIDF loans would free up 65 billion baht a year now allocated for debt payment by the central government.

More importantly, the shift would allow the government to take out additional debt under the budget rules, which require debt service obligations to remain under 15% of budget expenditure, currently set at 2.38 trillion baht for fiscal year 2012.

Mr Kittiratt said while the central bank would hold final responsibility for the debt, the measure would have no impact upon the country's economic stability.

"The plan is in line with the principles set by the central bank, namely that we won't print money to pay for the debt, it has no impact on the country's foreign reserves or donations made to the reserves and it won't affect the country's public debt standing," he said.

Finance Minister Thirachai Phuvanatnaranubala said the transfer would not hurt financial or monetary discipline but would give the government room for new investment.

Sources said ministers held a spirited debate on the measures yesterday, with Mr Kittiratt starting the talks by insisting that budgetary leeway was needed to support new investment and stimulus spending considering the shaky global economy at present.

Mr Thirachai, however, questioned whether it was necessary to fast-track the FIDF debt transfer before details of the investment programmes are completed, a position supported by Prime Minister Yingluck Shinawatra, one official present at the meeting said.

Ministers also asked whether the details of the transfer plan should be made public at this time, with Public Health Minister Witthaya Buranasiri noting that the Pheu Thai Party had heavily criticised the previous Democrat government of Abhisit Vejjajiva for taking out new borrowing to support investment.

Central bank governor Prasarn Trairatvorakul, who did not attend the meeting, said it remained to be seen whether the development fund had the capacity to manage the debt.

"The FIDF is a separate entity from the central bank," Dr Prasarn said. "If it doesn't have tools [to manage the liabilities], the liabilities will eventually become a fiscal burden."

Another open question is whether FIDF-issued bonds in the future would prove attractive to the markets.

If investors question the credibility of the fund's debt, they would demand higher interest payments, raising overall costs. At the end of 2010, the FIDF had losses of 349 billion baht, with 188 billion in assets and 62 billion in liabilities.

Charl Kengchon, managing director at Kasikorn Research Centre, said he disagreed with the transfer altogether, and that the government should instead focus on reprioritising its spending plans to support development needs.

The central bank lacks income to pay down the FIDF debt and diverting funds that now go to finance a system-wide deposit insurance programme will raise questions about the health of the scheme in the future, he added.

"The government's plans should be based on two principles _ fairness and practicality," Dr Charl said.

Another banker said banks would almost certainly pass on any added expenses charged by the FIDF directly to the public, with borrowers being forced to pay higher interest rates and depositors in turn receiving lower rates.

The massive debt stems from the 1997 economic crisis, when the Chavalit Yongchaiyudh administration directed the FIDF to offer a blanket guarantee on deposits and liabilities of ailing banks and finance companies. The original debt of 1.4 trillion baht was to be paid off with profits from the central bank, while interest costs on government bonds issued to refinance the obligations would be the responsibility of the Finance Ministry. But over the past 10 years, only 231 billion baht in debt has been paid down by the central bank, while more than 600 billion in interest has been paid directly by taxpayers from the government budget.

Bangkok Post : BoT baulks at govt bid to drop debt in its lap

Opinion

BoT baulks at govt bid to drop debt in its lap

• Published: 5/01/2012 at 12:00 AM
• Newspaper section: News

The debate over the past several days regarding who should hold responsibility for the 1.14-trillion-baht in outstanding liabilities from the Financial Institutions Development Fund, should serve as a clear wake-up call about the dangers and costs of poor policy.

Bank of Thailand Governor Prasarn Trairatvorakul’s reluctance to accept the FIDF liabilities might reflect the bank’s concern over the government’s direction in fiscal policy.

The FIDF costs, by even the most optimistic estimates, may well have to be paid by the public for the next 30 to 50 years, spanning the next two generations.

A refresher. The FIDF, a unit under the Bank of Thailand, was ordered by the Chavalit Yongchaiyudh government to guarantee depositors and creditors of ailing banks and finance companies in 1997, in a bid to prop up public confidence in the rapidly sinking economy. Within one year, numerous banks and finance companies were ordered permanently closed, forcing the FIDF to make good on its blanket guarantee.

The suspension and later closure of the financial institutions had a ripple effect on the entire economy. Companies and individuals reliant on bank financing found their access to credit all but vanished, resulting in liquidity problems rapidly turning into solvency problems. This in turn resulted in even higher defaults on existing loans, putting further pressure on the banking system and asset prices while pushing the economy into a sharp contraction.

The collapse of the fixed exchange rate system in July 1997 further complicated matters, as anyone with foreign debt saw their obligations rise sharply in local terms with the depreciation of the baht. The Bank of Thailand saw its reputation ravaged after it was forced to go cap in hand to the International Monetary Fund for help to prop up the country's foreign reserves. Both the Chuan Leekpai and Thaksin Shinawatra governments issued laws to refinance the liabilities and require the Bank of Thailand to remit earnings from its annual operations to the Finance Ministry to cover the debt repayments. In the interim, interest on the debt, originally 1.4 trillion baht, would be covered by the ministry from the government budget.

But due to the various technicalities in accounting practices, the amount repaid has been small. Over the past decade, only 231 billion baht in debt principal has been repaid, compared with over 600 billion paid in interest.
Even new graduates managing their first credit card understand that allowing interest expenses to build unfettered is hardly smart financial strategy.

The Yingluck Shinawatra government, which is facing its own budget pressures, wants to change the rules of the game by shifting the debt service costs directly back to the FIDF. Under an agreement worked out last week, an estimated 30 billion baht per year will be raised for debt payments by shifting contributions now paid by banks to the Deposit Protection Agency. Another 20 billion baht is expected to come from new "surcharges" imposed directly by the FIDF on local banks.

Kittiratt Na-Ranong, the deputy premier overseeing economic affairs, argues that the point isn't which agency created the debt, but rather which agency is best positioned to carry these obligations.

Mr Kittiratt's perspective is that the central bank, with foreign reserves topping $175 billion, is stronger than ever, and should step forward to help the government carry the financial burden of the FIDF obligations.

Unsurprisingly perhaps, Prasarn Trairatvorakul, governor of the central bank, takes a different view. The Bank of Thailand's balance sheet actually shows negative equity of as much as 400 billion baht, with accumulated losses of 190 billion as a result of intervention policies over the past decade to help stabilise the exchange rate. While the central bank's balance sheet isn't necessarily comparable with a private, for-profit company's, adding the liabilities to its plate certainly will have negative consequences for its market reputation and, by extension, its ability to conduct monetary policy in the future.

Dr Prasarn's reluctance also stems from the principle that worldwide, the costs incurred from banking crises are almost entirely made the responsibility of governments, not of central banks, as it is the government that has the authority and power to raise revenues through taxes. From this argument, the Bank of Thailand is no different than any other state agency _ profits are remitted to the government, which may choose to use the funds for debt service, new investment in roads and dams, or to raise salaries for civil servants. But if the Bank of Thailand _ or any other public agency _ fails to generate profits, then ultimately the debt remains the burden and responsibility of the government.

In any case, I think it's clear that some meeting of minds is necessary between the government and the central bank to set out a roadmap on how best to address the FIDF problem. I can still recall how, in 2002, the government issued a special law authorising the transfer of 165 billion baht in assets from the central bank's special reserve account to help offset losses on its balance sheet. The goal then was to enable the central bank to clear its accumulated losses and restore its profitability and, ultimately, remit greater funds to the Finance Ministry to clear the FIDF debt.

It is evident that the measure wasn't enough then, and may not be enough now. Regardless, both sides appear to hold different views on the actual financial strength of the central bank.

Another point worth considering is the supposition that Dr Prasarn's reluctance to accept the FIDF liabilities might reflect the central bank's worries about the direction of fiscal policy and budget management. Certainly, transferring the liabilities and interest costs from the budget will give the Yingluck government added room to take out new debt to finance its own its spending plans. And Ms Yingluck will almost certainly trumpet the sudden decline in public debt, which by international practice does not count central bank obligations, as proof of the government's savvy in economic policymaking.

Dr Prasarn argued last week that as the FIDF was a policy tool of the government in addressing banking sector crises, its losses should also be the responsibility of the government. Unsaid, of course, was the Bank of Thailand's own role in "managing" the exchange rate and foreign reserves in 1997, and its own role in the policy blunders that led to the economic crisis.
In any case, regardless of where the debt is and in which account, I do believe that it remains public debt, as it is the public who must ultimately pay.
These obligations will be paid by us and our children for years to come, either in the form of higher taxes, surcharges passed on by local banks, or perhaps in the form of higher inflation if some future government and central bank simply decides to print money to pay off the debt.

And that would be unfortunate, considering how many new schools, hospitals and roads 1.14 trillion baht could pay for.

Even now, 14 years after the Asian economic crisis, the costs of policy mismanagement and poor governance plague us still.


Wichit Chantanusornsiri is a senior business reporter for Bangkok Post.

From the blog world.....

https://thaiintelligentnews.wordpres...-central-bank/

Economics News: Matichon’s Editorial on the “Good People” involved in the transfer of US$ 35 billion debt to the Central Bank

January 5, 2012

• By Pooky, Thai Intel’s economics journalist

The Thai financial crisis, that hit Thailand about 10 years ago-was called by most in Thailand as the action of George Soros attacking the Thai baht. All the attention went off course, to the evil of globalism and global financial centers.

• But the fact is, if Thailand’s finances were healthy, the attack would have failed, and the attacked occurred, precisely because of weakness. Here is the past that most Thais do not accept, even today. And the reason Thai finances was weak was because of the Democrat Party, under Tarrin, the then finance minister, encouraged Thais to borrow. And Thai corporations did borrow, mostly short-term loans from foreign sources-till short-term debt to foreign reserves to exports/imports exploded way beyond safe boundaries.

With that weak picture of Thai finances, people like George Soros attacked the Thai currency.

Incredibly, the Thai central bank, instead of realizing that the then, baht pegged to the dollar system, has to change to a float system-refused to respond to the baht being attack-and spent “EVERY LAST CENT OF FOREIGN RESERVE” on defending the baht. That off course failed to protect the baht, and with Thailand bankrupted-Thailand had to enter the IMF scheme.

That was a long-time ago. The following is from Max G, over at Seeking Alpha:

Thailand is currently experiencing the socioeconomic problem of a missing middle class. There is a great divide between the country’s highest earning and lowest earning groups. The country’s highest earning group is benefiting from increased connectivity through technology. Some members of the middle class have just emerged from poverty and are earning the majority of their income through labor. The lowest bracket in this group is feeling the most pressure about their future. In Thailand, the richest 20% make almost 60% of the income. The poorest 20% made only 4% of the income. This disparity has Thailand ranked last place amongst its neighbors. The disparity between the rich and the poor is similar to what was seen in Russia after the collapse of the Soviet Union. Slowly, Russia’s middle class is gaining in members. Economic policy reform has been painstakingly slow in Russia, but progress has been made. Analysts feel that policy reform in Thailand should focus largely on limiting monopolies and deterring corruption.

With that being said, just last week Thailand’s central bank announced that it would allow foreign bank expansion. This is part of the second phase of Thailand’s Financial Sector Master Plan. Basically, foreign banks currently operating a branch in Thailand would be permitted to become a subsidiary that can have up to 20 branches and 20 separate ATMs throughout the country. There are currently 15 foreign bank branches in Thailand, five of which are European, three are Japanese, and three are US banks. The central bank’s new policy aims to increase competition while enhancing the efficiency of Thailand’s financial system. This new policy adapted by Thailand’s central bank will make financial services monopolies fairly impossible.

With the new policy in place, foreign direct investment will have an easier time finding its way to Thailand. Better banking choices could also lead to expanding trade. Thailand could well see a great expansion in economic development with the next few years. This is a great time to consider investment in Thailand, especially with respect to financial services. The new policy will promote competition among financial firms. The iShares MSCI Thailand Market Index (THD) regularly maintains financial services as its top holding category. The fund sees a consistent growth pattern and holds a high return rating. THD could be just the fund to bet on Thailand’s economic development in response to policy reform.

Thailand is one of few markets in Asia that has yet to be fully tapped. Thailand’s central bank is on the right track. This emerging Asian market is set to become a financial powerhouse. This new policy will only speed the already growing progress in this direction. Thailand is an opportune hub for trade and commerce. This is a great time to get in on the ground floor.

• The following is from Matichon:

ที่ประชุมคณะรัฐมนตรีเมื่อวันอังคารที่ 27 ธันวาคม 2554 มีมติรับหลักการข้อเสนอของนายกิตติรัตน์ ณ ระนอง รองนายกรัฐมนตรี ฝ่ายเศรษฐกิจ
(The government agreed to recommendations from deputy prime minister on economics, Kittirat)

ให้โอนคืนหนี้ของกองทุนฟื้นฟูและพัฒนาระบบสถานการเงิ นจำนวน 1.14 ล้านล้านบาท กลับคืนไปให้กับธนาคารแห่งประเทศไทย เป็นผู้รับผิดชอบชดใช้หนี้
(About US$35 billion debt carried by the government, will be transferred to the central bank for debt re-payment)

เพื่อให้ยอดหนี้สาธารณะของรัฐบาลลดลงจากร้อยละ 40 ของจีดีพีเหลือร้อยละ 30 เปิดช่องให้สามารถกู้เงินเพิ่มเติมมาใช้ในการฟื้นฟูแ ละซ่อมสร้างเศรษฐกิจภาย หลังอุทกภัยครั้งใหญ่
(With the transfer, public debt will reduced from 40% of GDP to 30% of GDP. paving way for increased borrowing to address the reconstruction after the the flooding disaster)

แต่มี′ติ่ง′อยู่ตรงที่ให้ส่งเรื่องนี้ให้คณะกรรมการก ฤษฎีกาทำการศึกษาผลดีผลเสียทางกฎหมาย
(The council of state will look at the law)

และมีผู้ออกมาแสดงความเห็นคัดค้านมติ ครม.อย่างชัดเจน ชื่อนายธีระชัย ภูวนารถนรานุบาล
(Thailand’s finance minister, Therachai, opposes the move)

ตำแหน่งรัฐมนตรีคลัง
(Therachai, the finance minister)

อดีตนักเรียนทุนและพนักงานแบงก์ชาติ
(Therachai who worked at the central bank)

1.14 ล้านล้านนี้มีที่มาที่ไปน่าสนใจยิ่ง
(Where this US$35 billion came from is interesting)

ผู้ผ่านประสบการณ์เจ็บปวดจากวิกฤตเศรษฐกิจการเง ิน เมื่อปี 2540 คงจำได้
(The financial crisis some 15 years ago was painful)

ในปีนั้น ไม่ใช่เพียงแต่แบงก์ชาติประกาศลดค่าเงินบาท ที่ทำให้หนี้สินของบริษัทที่กู้เงินต่างประเทศเพิ่มข ึ้นร่วมหนึ่งเท่าตัวในทันที
(in that crisis, the central bank devalued the Thai baht resulting in the doubling of Thailand’s foreign debt)

แต่ยังประกาศปิดกิจการบริษัทเงินทุนที่ขาดสภาพค ล่อง 56 แห่ง ซึ่งกองทุนฟื้นฟูฯ-ที่เป็นอีกสาขาหนึ่งของแบงก์ชาติ (ซึ่งทำเองไม่ได้เพราะติดขัดกฎหมาย) ไปแบกรับเอาไว้ทั้งหมด
(in that crisis, the central bank also closed down 56 financial institutions and assuming the losses)

นำสินทรัพย์จำนวน 851,000 ล้านบาทออกเร่ขาย
(the central bank thus sold the 56 financial institution assets of about US$28 billion)

ได้เงินคืนมา 190,000 ล้านบาท
(the central bank got US$6 billion from the sale)

ส่วนต่างขาดทุนกว่า 500,000 ล้านบาท ที่กองทุนฟื้นฟูฯ ซึ่งกู้เงินมาจากแบงก์ชาติอีกต่อ จะต้องรับภาระ
(the loss is about US$ 20 billion)

ก็มีการเล่นแร่แปรธาตุในปี 2544 ด้วยการออกพระราชกำหนดโอนหนี้สินทั้งหมดของกองทุนฟื้ นฟูฯ มาให้กระทรวงการคลัง หรือรัฐบาลเป็นผู้รับภาระในการจ่ายดอกเบี้ย
(then all the loss was transferred to the finance ministry to take responsibility or meaning the government to pay interest)

ส่วนแบงก์ชาติจะรับภาระใช้หนี้เงินต้น
(the central bank is only responsible for paying down the principle loan amount)

10 ปีผ่านไป รัฐบาลมีภาระต้องจ่ายดอกเบี้ยจากการออกพันธบัตร เพื่อนำเงินไปใช้หนี้แทนกองทุนฟื้นฟูฯปีละกว่า 60,000 ล้านบาท มาทุกปี
(10 years have passed and the government have had to issue bond to borrow money to pay the interest by about US$3 billion a year)

แต่แบงก์ชาติลดเงินต้นของหนี้ก้อนนี้ลงไปเพียง 300 ล้านบาท
(Over that time, the central bank had paid off US$15 million in principle)

ย้ำ 300 ล้านบาท
(Again US$15 million)

เมื่อมองย้อนกลับไป มีคำถามอยู่ 2-3 ข้อ ที่แบงก์ชาติไม่เคยตอบกับสังคม
(There are a few questions)

ข้อแรก นโยบายที่เลือกใช้ในวันนั้น โดยเฉพาะการปิดบริษัทเงินทุนที่นำไปสู่การล้มละลายขอ งธุรกิจอีกเป็นจำนวนมาก ซึ่งพลอยขาดสภาพคล่องไปด้วย
(First, the closing down of the financial institution leads to the bankruptcy of many other companies as liquidity disappeared)

เป็นนโยบายที่ถูกหรือผิด
(Is that central bank policy the right one)

ข้อต่อมา วิธีการขายสินทรัพย์แบบแยกเป็นกองใหญ่ที่ ปรส.ทำตามข้อเสนอของบริษัทที่ปรึกษาฝรั่งอย่าง′โกลด์ แมน แซคส์′ ทั้งที่มีผู้ทักทวงเป็นจำนวนมาก ว่ามีแต่จะยิ่งทำให้เกิดความเสียหาย
(Then the selling of the assets of the closed financial institution by Goldman Sach, even with widespread protest that it would cause massive lost)

เป็นนโยบายที่ถูกหรือผิด
(Is that central bank policy the right one)

และข้อสุดท้าย เมื่อแบงก์ชาติมี′อิสระ′ในการเลือกนโยบายว่าจะทำหรือ ไม่ทำอะไรได้เอง ตั้งแต่การกำหนดอัตราแลกเปลี่ยน ไปจนถึงการกำหนดชะตากรรมของสถาบันการเงิน
(Lastly, the Thai central bank has always had a great deal of “Independence”)

ถ้านโยบายที่ทำลงไปเป็นนโยบายที่ผิดพลาด
(However, if the central bank policy is wrong?)

ใครควระเป็นผู้รับผิดชอบ
(Who will take responsibility?)

หลายๆ รัฐบาลที่ผ่านมา หวานอมขมกลืนกับภาระหนี้กองของทุนฟื้นฟูฯที่แบงก์ชาต ิมัดมือชกโยนมาให้ รัฐบาล นำเงินของผู้เสียภาษีทั้งหลายไปจ่ายชดเชยให้ความผิดพ ลาดของตนเอง
(many government of the past have been troubled with the shouldering the debt that the central bank passed on to the government, with tax payers money having to finance the failure of the central bank)

แต่ไม่มีรัฐบาลกล้าพอที่จะโยนหนี้ก้อนนี้กลับไปยังต้ นตอที่มา
(But there never was a government courageous enough to pass the debt back to the central bank)

เพราะว่า′ต้นทุนทางสังคม′ของแบงก์ชาติ ซึ่งสั่งสมมาตั้งแต่สมัย ดร.ป๋วย อึ๊งภากรณ์ ถูกยกย่องให้สูงส่งกว่ารัฐบาล ไม่ว่าจะมาจากการเลือกตั้งหรือแต่งตั้ง
(That is because the central bank is highly respected as “Good People” and is placed above the credibility of governments, no matter if the government was elected or appointed)

และการโยนหนี้ก้อนนี้กลับคืนสู่ต้นตอนั้นมีปัญหาเทคน ิคทั้งทางการเงินการคลังและทางกฎหมายหลายประการ
(And there are always difficult technical questions and legal questions about transferring back the debt to the central bank)

จนกระทั่งกลบคำถามตามหลักการง่ายๆ 2-3 ข้อที่ว่า
(So in the past, the above have shadow over a few simple questions)

คนดีทำผิดไม่ได้-ทำผิดไม่เป็นหรือ?
(Can not “Good People” make mistake?)

คนดีเมื่อทำผิดแล้วไม่ต้องรับผิดชอบหรือ?
(When “Good People” make mistake, do they not have to take responsibility?)

คนดีนั้นเป็นอิสระเป็นเอกเทศ ลอยอยู่กลางพาหิรากาศ
(Do “Good people” exists as an independent state?)

โดยไม่ต้องผ่านการตรวจสอบจากสังคมหรือ?
(Do not “Good People” have to be scrutinize by society?)

หรือแบงก์ชาติไม่ใช่องคาพยพส่วนหนึ่งของสังคมไท ย?
(Or is it that the Central Bank is not a part of Thailand)

Bangkok Post : Govt debt move takes flak

Govt debt move takes flak

Abhisit calls for details about investment plans

• Published: 6/01/2012 at 12:00 AM
• Newspaper section: News

Opposition leader Abhisit Vejjajiva has called on the government to come up with detailed plans of what it wants to invest in before asking for more leeway to borrow.

He made his remarks after the government's move to transfer oversight of 1.14 trillion baht in debt from the Finance Ministry to the Financial Institutions Development Fund (FIDF).

The cabinet on Wednesday approved in principle a draft decree to transfer responsibility for the debt carried over from the 1997 financial crisis to the FIDF. It is expected to finalise the order later this month.

Mr Abhisit said the government would do better by reviewing its spending plans under the 2012 budget, which calls for spending of 2.38 trillion baht.

Shifting costs to the FIDF and local banks would ultimately result in higher interest rates for the public, affecting the entire economy, he said.

"The government has to be more transparent in how it is spending money. Many wonder whether the government will actually be able to meet its spending targets, while at the same time, it wants to borrow massively. For what purpose?" Mr Abhisit said.

• See also: Democrats take aim at 'sloppy' plans

On Thursday, bank stocks fell 3.3% on investor fears the policy, deemed critical to help finance new flood-prevention projects, would raise costs for local banks and ultimately consumers.

Under the draft decree, the FIDF will have the authority to collect an annual charge from local banks of up to 1% of their deposits to help repay the debt, or the equivalent of up to 70 billion baht a year.

The debt stems from the bailout of depositors and creditors of ailing banks during the 1997 crisis. Currently, the Bank of Thailand (BoT) is obliged to pay off the debt from its annual profits, while interest expenses are charged to the annual government budget.

But over the past decade, the total debt has only fallen by 231 billion baht. Over the same period, taxpayers have had to pay more than 600 billion baht in interest costs. The fiscal 2012 budget sets aside 50 billion baht for interest payments on FIDF debt.

Also, disciples of revered monk Luang Ta Mahabua came out to oppose the government's debt transfer attempt. They argue the move would undermine the country's international reserves and economic stability.

Around 100 monks and layman followers of Luang Ta Mahabua visited the Finance Ministry and BoT yesterday to voice opposition to the draft decree.

Luang Ta Mahabua, who passed away in early 2011, led a highly public campaign during the 1997 crisis to solicit gold donations to help supplement the country's international reserves. The monk and his followers later led a prominent campaign against moves by the Chuan Leekpai government to adjust accounting practices at the central bank, a factor that contributed in part to the victory by Thaksin Shinawatra during the 2000 election.

The disciples yesterday said two sections of the draft decree were potentially dangerous for economic stability. Section 7(2) of the draft calls for annual earnings generated from reserve investments to be directly transferred to the FIDF rather than going to the central bank's special reserve account. Section 7(3) meanwhile gives the cabinet authority to direct the central bank to transfer funds or assets to the fund at its discretion.

Deputy Prime Minister Kittiratt Na-Ranong argues that shifting the liabilities to the FIDF will give the government budget flexibility to help finance some 350 billion baht in planned investments in water management programmes.

He repeated yesterday that the decree would save taxpayers paying interest expenses and have no impact on the country's international reserves.

Mr Kittiratt said the draft, now under review by the Council of State, could be issued as an emergency decree or a parliamentary bill, and would next be reviewed by two strategic committees set up to oversee reconstruction and water management programmes formed by the government in the wake of last year's floods.

"Personally, I think this should be issued as a decree, to give the public and investors confidence that the government remains committed to financial and monetary discipline while still being able to raise funds to finance our long-term water management projects," he said. "Our target is to complete these projects within three years."

Mr Kittiratt said once the 2012 budget is finalised by parliament, investment in short-term water management programmes could begin immediately to help guard against flooding before the start of the monsoon season in the middle of the year.

He said the 350-billion-baht water investment budget focused primarily on flood prevention and irrigation systems in the Chao Phraya River basin. "But in reality, we also need to invest in management systems for another 24 key water basins across the country, to help safeguard against flooding and natural disasters," Mr Kittiratt said.

The flooding last year was the worst in decades, with more than 700 deaths and one-third of the country inundated, including industrial estates in Ayutthaya, Pathum Thani and Nonthaburi.

In addition to new investment programmes, the cabinet also will establish a 50-billion-baht insurance fund to help companies secure flood insurance, and set up a low-interest loan programme to assist companies and homeowners rebuild flood-affected properties.

Mr Kittiratt said details of the water management projects would be finalised this week by the Strategic Committee for Water Resources Management (SWRM) and announced to the public on Jan 14.

Chakkrit Parapuntakul, the director-general of the Public Debt Management Office, said under the terms of the draft decree, the FIDF debt could be cleared within 30 years.

He said financial institutions should play a role in helping pay off the debt as the liabilities arose from the 1997 bailout of depositors and creditors of ailing banks and finance companies.

Local banks already pay a surcharge equal to 0.4% of their deposits to the Deposit Protection Agency to finance a limited insurance scheme on bank deposits. The decree calls for the current DPA levy to shift to the FIDF, with the BoT authorised to raise the levy to as high as 1% of deposits a year.

Thai-ASEAN News Network - Central Bank Concerned about FIDF Debt Decree



Central Bank Concerned about FIDF Debt Decree

UPDATE : 6 January 2012

The Bank of Thailand voices concern about the draft royal decree to authorize the transfer of the Financial Institutions Development Fund's debt, saying it might dampen investor confidence in the central bank and be detrimental to the future development of financial institutions.

The issue surrounding a draft royal decree that will prompt the transfer of debt incurred by the Financial Institutions Development Fund to the Bank of Thailand remains in the spotlight and closely followed by anxious investors.


Bank of Thailand Governor Prasarn Trairatworakul admitted his concern over a Cabinet resolution on Wednesday, which agreed in principle to the draft royal decree to restructure the FIDF's debt by having the central bank repay the principal and pay for the interest amounting to a total of 1.14 trillion baht.

He said the dangerous aspects of the decree lie in Section 7's Paragraph 3, which grants the Cabinet the authority to order foreign reserve and assets held by the central bank to be used in repaying the debt.

In addition, it does not spell out whether the said assets include currency reserve.

Prasarn is afraid that the issue could dampen international investor confidence about the central bank's role and activities.

The central bank governor also voiced concern about the plan to pass another decree empowering the Bank of Thailand to impose additional fees on financial institutions to raise funds for the debt repayment, saying that it will end up causing additional burden to commercial banks and their clients.

He said depositors will earn less interests from their savings, borrowers may be overcharged for interest payments and the banks' competitiveness may be weakened.

Similarly, Director of the Deposit Protection Agency Singha Nikornpun is also concerned about the extra fees and a possible cut in contribution from financial institutions to the Deposit Protection Fund, which is expected to cause the fund's balance to fall below the specified amount of 200 billion baht for use in the event that major banks experience financial problems.

http://www.bangkokpost.com/news/loca...ays-virabongsa

Central bank's attitude unhealthy for Thailand's democracy, says Virabongsa

• Published: 8/01/2012 at 12:00 AM
• Newspaper section: News

Former finance minister Virabongsa Ramangkura yesterday lashed out at the Bank of Thailand for taking an "unhealthy" approach to democracy because of its concern over the management of 1.14 trillion baht in long-standing liabilities.

Mr Virabongsa, who chairs the Strategic Committee for Reconstruction and Future Development (SCRF), said the central bank tends to pitch the public against the finance minister, which he slammed as counter to democratic principles.

"The ministers and politicians are [elected] by the people, while the central bank isn't. Yet, it tries to cause mistrust towards politicians, which is contrary to democracy," he said.

Mr Virabongsa's attack comes in the wake of a row between the central bank and the Finance Ministry over who should be responsible for the liabilities carried over from the 1997 financial crisis.

It was agreed that the Financial Institutions Development Fund (FIDF), a unit of the central bank set up to restore confidence among creditors and depositors of affected financial institutions during the 1997 financial crisis, would take responsibility for the debts.

Under the draft decree to manage the 1.14 trillion baht in liabilities, the FIDF is authorised to collect fees of up to 1% of deposits from local banks.

This would include the 0.4% charge already paid by the Deposit Protection Agency (DPA) to finance a limited deposit insurance programme.

Mr Virabongsa said it is the duty of the central bank to take care of the fee collection.

Deputy Prime Minister and Commerce Minister Kittiratt Na-Ranong said yesterday no matter who is responsible, the 1.14 trillion baht is public debt.

He said since the debt was incurred under the central bank's authority, it had to shoulder the burden.

Government spokesman Thitima Chaisaeng said changes in debt management are needed to pay off the FIDF's debts.

According to Ms Thitima, the central bank paid a principal of just 300 billion baht over the past 13 years, while the Finance Ministry has paid more than 600 billion baht to service the interest alone, or around 65 billion baht a year.

"The public will have to pay for the FIDF's debts if there is no change. How long will it take before the principal is paid off?" she said.

Democrat deputy leader Korn Chatikavanij yesterday agreed with the decision to impose fees on local banks. He said the debt was incurred because of attempts to help the financial institutions. But he was concerned consumers would be forced to bear the burden.

"So when [the institutions] are financially stronger they should help shoulder the debt. But the government needs to make sure that the public isn't forced to absorb it," he said.

Mr Korn criticised Mr Virabongsa for attacking the central bank as it has the right to argue against any policy initiative deemed to affect its independence and operations.

Bangkok Post : Shuffling deck chairs with debt

Shuffling deck chairs with debt

Transferring over one trillion baht between the government's rescue agency and the central bank has left taxpayers with an unfair burden

• Published: 8/01/2012 at 12:00 AM
• Newspaper section: Spectrum

The 1997 financial crisis was rooted in speculative excess and financial alchemy through the boom years of the 1990s. During a bubble, money comes fast and easy. And when the bubble bursts, it's those who are last to leave that are saddled with the costs.



In this case, it's the Thai taxpayer who is still shouldering the burden, to the tune of 1.14 trillion baht. Even by the most optimistic estimates, it may take 25 to 30 years to clear this debt, which overall accounts for nearly 25% of the country's entire public debt.

The bailout costs from the 1997 crisis have returned to the headlines in recent weeks after the government announced that it would shift the debt from the Finance Ministry to the Bank of Thailand in a bid to free up funds to finance new water management investments and spending programmes.

Cabinet ministers last week approved a draft decree that would shift responsibility for paying the debt to the Financial Institutions Development Fund (FIDF), an agency under the central bank that originated the debt in the first place.

Where did these liabilities come from? During the mid-1990s, capital inflows helped spur a bubble in the stock and property markets. Finance companies and banks lent eagerly to help spur speculative investments. And why not? So long as asset prices continued to rise, the banks would be repaid and profits would be made.

But the economic boom came to an abrupt halt in late 1996, as capital inflows halted and later reversed entirely amid questions over the sustainability of economic growth. Revelations of corruption and politically connected lending by the Bangkok Bank of Commerce further rattled public faith in the banking system.

Enter the FIDF. Created in 1985, the fund serves as a rescue vehicle for financial institutions in trouble. As the economy continued to slow, dud loans rose, resulting in losses for local banks. And fears of a system-wide failure spurred depositors to withdraw from smaller finance companies and banks, putting even further pressure on their cash flows and balance sheets. Ultimately, lending activities by the FIDF to problem financial institutions soared as access to funds from the market all but vanished.

The FIDF is nominally a separate entity from the central bank. But the FIDF chairman is by law the central bank governor, with the vice-chair position occupied by the Finance Ministry permanent secretary.

A commission set up in 1998 to investigate the causes of the economic crisis, known in Thai as Sor Por Ror, concluded that the central bank had the most influence in the FIDF's operations.

But the commission also pointed out the government has used the fund on many occasions as an instrument of public policy. In 1996, the government amended the FIDF's lending rules, enabling it to lend to financial institutions without collateral. And the government also made explicit commitments to offer financial support to the FIDF when necessary.

A capital increase in the ailing Bangkok Bank of Commerce was financed directly by the FIDF. And in August 1997, the Chavalit Yongchaiyudh government made the decision to offer a blanket guarantee to depositors and creditors across the entire financial system through the FIDF.

The following year, the Chuan Leekpai administration announced its "Aug 14" bank recapitalisation plan, once again using the FIDF as its vehicle to inject new capital into participating banks.

"The FIDF was an incredible monster," Tarrin Nimmanahaeminda, the finance minister from late 1997 to 2001, once said. The fund financed its operations by borrowing short-term from the money markets, effectively draining liquidity from the economy and stalling growth.

Eventually the government agreed that to avoid crowding out the market, the FIDF needed to refinance its liabilities with longer-term bonds rather than rely on short-term borrowings. In 1998, the government issued 500 billion baht worth of bonds to help refinance its short-term borrowings. Under the terms of the 1998 emergency decree, the central bank would remit 90% of its operating profits and also income from privatisation to help repay the debt.

But state enterprise privatisation never occurred during the Chuan government, and for various technical accounting reasons, the profits remitted by the central bank were miniscule relative to the size of the total debt.

By 2002, the FIDF's liabilities totalled 1.4 trillion baht, including the losses from share stakes held in local banks and the cost of repaying depositors and creditors under the blanket guarantee programme.

The Thaksin Shinawatra government agreed to refinance another lot of FIDF liabilities through the issue of up to 780 billion baht in government bonds.

Then finance minister Somkid Jatusripitak and central bank governor MR Pridiyathorn Devakula agreed that the central bank would set aside profits to pay down the debt principle, while the government would be responsible for the interest paid on government bonds.

But once again, the central bank was unable to pay as expected, as it ran losses from its efforts to stem the appreciation of the baht.

As the baht gained in value, the local value of its foreign currency assets declined, wiping out any potential gains from investment operations. According to the Public Debt Management Office, the central bank had repaid a total of 37 billion baht for the first lot of refinancing bonds issued in 1998. The central bank stopped contributing funds for principle payments since 2006 due to operating losses.

Originally, the central bank had estimated it would generate profits of 16.6 billion baht per year for the first lot, known as FIDF1, allowing total repayment by 2043. As for the bonds issued in 2002, the central bank repaid 14 billion baht until 2003, owing to the appreciation of the baht. If the central bank had met its previous profit target of 47 billion baht annually from 2014 onwards, the principle would be paid by 2027.

Regardless, the failure to reduce the principle has resulted in interest expenses ballooning each year. The FIDF's total debt currently stands at 1.14 trillion baht, with 231 billion in principle paid over the past decade. But over the same period, over 600 billion baht in interest has been paid directly from the central budget, ultimately by taxpayers.

The central bank, meanwhile, proposed several options to address the problem, starting with accounting changes in how the country's foreign reserves are booked to allow remittance of operating profits to the government without consideration of the impact of currency fluctuations on its foreign assets.

A second step would be to transfer all FIDF assets, namely shares in local banks estimated to be worth 100 billion baht, back to the Finance Ministry and public purse. A third option would be to transfer bank impaired assets now under control of the central bank to help offset losses.

But any move to amend how the country's foreign reserves are marked met with heavy resistance from followers of Luang Ta Mahabua, a respected monk who led a public campaign during the crisis to donate gold to the central bank to strengthen the country's reserves.

Regardless, the Yingluck Shinawatra government today is adamant on the need to eliminate the FIDF burden from the government purse.

Essentially, by transferring responsibility back to the FIDF, the government is shifting the burden of repayment from taxpayers through the annual budget to local banks.

But critics say the move is misleading, as banks will almost certainly pass on any higher costs as a result of a FIDF surcharge to depositors and borrowers alike.

From the government perspective, however, the debt service burden, equivalent to some 45 billion baht per year, has become untenable as it also faces the need to raise new funds for infrastructure investment as well as meet its commitments to policies such as price guarantees for rice farmers, fuel subsidies, higher retiree pensions and corporate tax cuts.



TIMELINE: HOW THE CRISIS UNFOLDED

March, 1996:

BOT orders BBC to increase capital and buys 5.4 billion baht worth of its shares.

May, 1996:

Start of a bank run at BBC after improper lending practices are disclosed during a censure debate.

August, 1996:

BOT orders BBC to increase capital again, buying 22.5 billion baht worth of its shares.

March, 1997:

BOT orders 10 ailing finance companies to increase their capital and guarantees short-term debt papers of 48 finance companies.

June, 1997:

BOT orders temporary suspension of 16 finance companies, allowing depositors to swap for Krungthai Thanakij Finance Co's debt papers.

July, 1997:

BOT floats the baht.

August 1997:

BOT orders 42 finance companies to temporarily close.

The cabinet passes a resolution for a blanket guarantee for depositors and debtors.

The government accepts IMF-sponsored financial assistance.

October, 1997:

The government sets up the Financial Restructuring Agency to manage the troubled loans of 58 finance companies.

The government amends the law to allow the FIDF to lend to financial institutions without collateral.

December, 1997:

FRA announces the closure of 56 out of 58 temporarily suspended finance companies.

February, 1998:

BOT orders decrease of BBC's capital, with the FIDF then buying 10 billion baht of new shares.

BOT orders a decrease of Bangkok Metropolitan Bank's capital, with FIDF buying 25 billion baht of new shares.

BOT orders a decrease of Siam City Bank's capital, with the FIDF buying 20 billion baht of new shares.

BOT orders a decrease of First Bangkok City Bank's capital, with the FIDF buying 32 billion baht of new shares.

August, 1998:

BOT orders a decrease in Union Bank's capital, with FIDF buying 13 billion baht worth of new shares.

BOT orders a decrease in Laem Thong Bank's capital, with FIDF buying 15 billion baht worth of new shares.

BOT orders a decrease in the capital of five finance companies, with FIDF buying new shares worth 17 billion baht.

The government announces a financial rescue package on Aug 14 that outlines the auction and merger of intervened banks and transfer of troubled loans to asset management companies.

December, 1998:

FIDF injects 77 billion baht in new capital into Krung Thai Bank.

March, 1999:

The Finance Ministry begins to issue bonds to refinance the FIDF liabilities.

April, 1999:

FIDF increases capital in BankThai (formerly Union Bank).

July, 1999:

BOT orders a decrease in capital in Nakornthon Bank, with FIDF buying seven billion baht in new shares.

August, 1999:

FIDF increases capital in Krung Thai Bank by 108 billion baht.

September, 1999:

FIDF sells NTB's shares to Standard Chartered Bank and signs a loss sharing agreement on impaired asset management.

November, 1999:

FIDF sells Radanasin Bank's shares to UOB.

April, 2000:

The cabinet directs FIDF to set up an asset management company to buy troubled loans from KTB.


Source: Finance Ministry, BOT, FIDF; 2000.

Bangkok Post : Chatumongol criticises debt transfer to FIDF

Chatumongol criticises debt transfer to FIDF

Cabinet expected to give the nod to decree today

• Published: 10/01/2012 at 12:00 AM
• Newspaper section: News

The transfer of 1.14 trillion baht in debt from the 1997 crisis to the Financial Institutions Development Fund could complicate the Bank of Thailand's job in managing economic policy, chairman of the central bank board MR Chatumongol Sonakul says.

MR Chatumongol, himself a former central bank governor and finance permanent secretary, yesterday said no central bank officials had seen the draft decree authorising the debt transfer yet.

Cabinet members are today expected to approve the decree shifting responsibility for the 1.14 trillion baht in debt to the FIDF, an institution set up under the central bank to manage bank crises.

The FIDF will be authorised to collect a levy on bank deposits to finance payments on the debt, which now costs the government up to 65 billion baht a year. Authorities want to transfer debt payments from the central budget to the fund to help free up room for the government to finance hundreds of billions of baht in new infrastructure investment over the next several years.

But MR Chatumongol said the argument that the transfer is needed to fund new investments is specious.

The government could finance its water management projects if it ensured efficient screening and spending and guarded against "leakage", he said.

The FIDF obligations are now paid by transferring profits from the central bank each year, with interest costs covered by the ministry. But only about 231 billion baht from the original 1.4 trillion in debt has been paid in the past decade, as currency losses have prevented any paydown of the principal. In the same period, taxpayers have had to pay 600 billion baht in interest costs to cover the debt, built up from the bailout of ailing banks during the 1997 crisis.

MR Chatumongol warned Thailand would risk undermining its credibility if the government shifted the debt to the central bank, and said the interest costs could be covered by other means.

Shifting bank contributions now made to the Deposit Protection Agency would raise 30 billion baht in funds annually, with another 30 billion potentially raised if the government changed the law to allow the central bank to shift profits generated from its reserves.

"The existing framework for the FIDF debt repayments is fine. The government would be capable of paying the debt in installments over the next 15 to 30 years," MR Chatumongol said. "We can stick to the existing timeframe, if there is good management. The country is currently in a good position. But it can also sink into a mess, if we allow it."

Central bank governor Prasarn Trairatvorakul insisted he has yet to see a copy of the draft decree.

"As the operating agency, we should have been able to see a draft," he said.

Mr Prasarn added that the central bank would be able to comply with the order so long as it followed guidelines negotiated last week that the transfer would not boost money supply nor affect the country's foreign reserves.

Chakkrit Parapuntakul, the director-general of the Public Debt Management Office (PDMO), said the FIDF debt could be paid down within 18 years if surcharges on local banks are increased to 1% of deposits and legal changes are made to the central bank's accounting practices.

Section 7(2) of the draft decree calls for the central bank to remit profits from its investment operations directly to a special account to help settle the debt without having to transfer to the special reserve account, which under current law may not be tapped for other purposes.

But the clause has already attracted opposition from disciples of revered monk Luang Ta Mahabua, who argue that allowing the transfer would undermine the country's economic stability and the country's reserves. Luang Ta Mahabua, who passed away last year, led a campaign in 1997 to donate gold to the central bank during the economic crisis.

The draft will also empower the FIDF to collect a fee from local banks of up to 1% of their deposits each year, inclusive of the existing 0.4% charge collected for the deposit insurance programme.

If the full 1% charge is collected, the FIDF would have annual income of up to 76 billion baht. The draft gives the central bank the authority to set rates.

According to the PDMO, if the FIDF relies solely on bank surcharges to pay down the debt, without any change in accounting practices at the central bank, the debt would take 30 years to clear.

Deputy Prime Minister Kittiratt Na-Ranong said the decree would follow the terms made with the central bank.

He said ministers today would also consider decrees calling for the creation of a 350-billion-baht investment fund for water management projects, a 50-billion-baht fund to help local companies and households secure flood insurance and a low-interest loan programme financed by the central bank to assist rebuilding.

Some pieces from yesterday that didn't get posted...

Abhisit slams government, Virabongsa
09/01/2012 : The government's decision to transfer responsibility to the Bank of Thailand for the 1.14 trillion in debt stemming from the 1997 economic crisis will create management problems for the central bank, Opposition Leader Abhisit Vejjajiva said Monday.

Korn warns against 'bank robbery'
Former finance minister says using central bank assets to pay off debts is risky; opposes use of emergency decree

Govt to Press Ahead with Debt Transfer
Monday, January 09, 2012
A deputy prime minister will propose the draft decree to authorize the transfer of the Financial Institutions Development Fund's debt to the central bank at the Cabinet meeting tomorrow. Deputy Prime Minister Kittirat Na Ranong disclosed that he will propose the draft decree, which would transfer 1.14 trillion baht of the Financial Institutions Development Fund, or FIDF's debt from the Finance Ministry to the Bank of Thailand, at tomorrow's Cabinet meeting.

This is a scheme to get government debt off the books, so they can borrow more money without giving the impression of further in debiting the country?

Isn't it this kind of financial magic that got many countries in europe into the mess they are in now? There are good grounds for why the government needs to borrow more money, its not like its on the edge of becoming a debit basket case, so why not just be honest about the borrowings

Bangkok Post : Govt to keep issuing bonds to cover fund liabilities

Govt to keep issuing bonds to cover fund liabilities

• Published: 11/01/2012 at 12:00 AM
• Newspaper section: News

The government has confirmed it will continue to issue government bonds to cover outstanding liabilities of the Financial Institutions Development Fund.

Governor of the Bank of Thailand Prasarn Trairatvorakul said cabinet members yesterday approved a decree shifting responsibility for 1.14 trillion baht in debt from the 1997 crisis to the development fund.

The FIDF will also gain authority to impose surcharges on local banks to finance debt payments.

The transfer will reduce interest expenses on the government budget by up to 65 billion baht a year, giving the Finance Ministry leeway to borrow new funds to finance infrastructure and water management investment projects.

But the fact that the liabilities will remain in the form of government bonds means that Thailand's public debt, now at 4.2 trillion baht, or 40% of gross domestic product, will stay unchanged.

Dr Prasarn said the commitment to continue issuing government bonds to cover the FIDF liabilities ensured that the central bank would not have to monetise, or print money, to cover the debt.

"The debt transfer is a way of managing limited resources," he said.

"The government has many burdens. So the interest burden freed up [by the debt transfers] may be used for flood prevention projects or other issues.

"The government will be responsible for issuing new bonds as existing bonds become due."

Kamnoon Sitthisamarn, a member of the Senate standing committee on money, finance and banking, said there was a certain degree of risk that the Constitution Court might rule to void the decree if it is deemed not urgent.

If so, the government may reconsider the FIDF transfer as an act, a much more time-consuming process due to the need for parliamentary review.

Mr Kamnoon, speaking after a hearing on the FIDF decree, noted that even with the reassurances received by the central bank, the draft did not stipulate who would issue bonds to cover the principal debt.

Dr Prasarn acknowledged he has yet to see a draft of the decree, but said he presumed that amendments had been made in line with the central bank's requests.

He added the central bank expects to find revenues from various sources to cover the interest burden of 45 to 50 billion baht a year.

Other sources of funds would be needed to help pay down the principal over a 25-year timeframe.

A plan to impose an 0.4% charge on some 2 trillion baht in outstanding bills of exchange issued by local banks would raise 4 billion baht in funds.

The central bank also plans to gain another 30 billion baht a year from shifting the existing 0.4% charge on deposits paid by banks to the Deposit Protection Agency.

The remaining funds will come from profits from asset management by the FIDF and claims on benefits received by banks from the government's plan to cut corporate income taxes.

Dr Prasarn said the central bank would consider increasing levies on bank deposits to more than 0.4% a year as well as changing accounting practices for the country's reserves in order to help pay off the FIDF debt more quickly.

In any case, authorities would ensure any increase would not impose an undue burden on bank customers or hurt the competitiveness of financial institutions, he said.

Finance Minister Thirachai Phuvanatnaranubala said the central bank may post a 20 billion baht windfall this year from currency gains.

Thailand Plays Pass The Buck On Bank Bailout Bill - Forbes

1/13/2012 @ 12:00AM

Thailand Plays Pass The Buck On Bank Bailout Bill

It’s not everyday that I read a story on Thai banking and think of David Bowie. So, indulge me for a moment. ‘Young Americans’ (1975) has the following lyric: ‘Do you remember, the bills you have to pay, or even yesterday?’ OK, so Bowie wasn’t singing about interest payments on bank bailout funds. But a future pop balladeer might have to take up the theme, given the debt mountains in the West. In Thailand, the banking sector is still singing the post-bailout blues, 15 years after a crash. This was the 1997-98 Asian financial crisis, which began in Bangkok and ended with dozens of Thai lenders going bust, an IMF-led bailout and a serious hangover. Thailand has since repaid the IMF in full, but is still carrying THB1.14 trillion ($36.7 billion) on its books from the banking collapse. Successive governments have serviced the debt without making much impact on the principal. Now Prime Minister Yingluck Shinawatra is trying to pass the buck to the Bank of Thailand (BOT) and the commercial banking sector for THB45 billion ($1.4 billion) in annual interest payments. Cue snorts of outrage, denial and protest from the banking sector. Maybe they had forgotten the bills of yesterday, just as Wall Street likes to play down its massive public subsidy in 2008 (an amnesia shared by the Fed).

Thai bankers met Thursday with regulators to discuss their plan to collect fees of up to THB70 billion a year, or 1% of total deposits. “Banks want to help…but questions remain on who has to bear the burden,” said one. Banks already pay 40bp to the government as deposit insurance, a post-crisis reform. The new plan would hike premiums in order to generate income for debt servicing. This frees up the government to invest in water management projects and flood insurance after last year’s devastating floods. Last week it passed a decree authorising the transfer of the debt to the BOT. In turn, the central bank can collect fees from the banks. BOT Governor Prasarn Trairatvorakul objected to a government proposal that he tap foreign reserves to service the debt. He has instead agreed that income from reserves, but not the principle, could be monetized for this purpose. Some politicians are upset. The opposition Democrat Party said it will file a legal challenge on the basis that the government had breached a law on the management of central bank reserves.

Bank stocks fell last week on the news, but perked up this week as Asian markets posted gains. There’s still a possibility that a court could block the transfer of liabilities to the BOT. But it’s probably fair to assume that banks will be landed with higher fees. Credit Suisse has calculated that a 20bp rise in deposit insurance would cut the sector’s earnings by 8%, which is a significant blow. Smaller banks such as TMB and TISCO would take the biggest hit, according to Credit Suisse. It also points out that the diversion of deposit insurance to service public debt carries another risk.

The diversion of the 40bp currently paid by banks to DPA [the Deposit Protection Agency]…will deprive DPA of funds. Because it is new, DPA has only THB80-90 bn, an insufficient amount to handle even a single bank failure, but we had hoped that once DPA acquired more funds, the 40bp charge could be cut. Diversion of current premiums would delay any cut.

Bangkok Post : Bankers fret about repayment

Bankers fret about repayment

• Published: 13/01/2012 at 12:00 AM
• Newspaper section: News

Local bankers remain uncertain about how authorities will finance the repayment of 1.14 trillion baht in bailout debt from the 1997 economic crisis.

Members of the Thai Bankers' Association met central bank officials last night to discuss the government's plans to shift oversight for the debt to the Financial Institutions Development Fund (FIDF).

The FIDF in turn will have the power to collect fees from local banks of up to 1% of their bank deposits, potentially raising over 70 billion baht a year.

Twatchai Yongkittikul, the Thai Bankers' Association secretary-general, said local banks are willing to help authorities address the debt problem, but also sought clarity on how it would be managed over the long term.

"Banks want to help ... But questions remain on who has to bear the burden," he said.

Chartsiri Sophonpanich, the chairman of the bankers' association and chief executive of Bangkok Bank, said it was the first time local banks had discussed the issue with regulators.

How much the FIDF would collect from banks remained unclear, he said.

The opposition Democrat Party meanwhile will file a challenge next week with the Constitution Court against the FIDF decree.

Korn Chatikavanij, a Democrat deputy leader, said the decree effectively amends the Bank of Thailand Act on how the country's reserve accounts are managed.

But section 184 (2) of the constitution allows an emergency decree to change an existing law only in extraordinary circumstances, say to preserve national security or economic stability.

Mr Korn said the government's argument that the decree was necessary to help clear funds for water management investments was misleading, as spending for debt servicing was set at just 7% of spending under the 2012 fiscal budget, or less than half the actual limit.

MR Pridiyathorn Devakula, a former central bank governor and deputy prime minister, agreed the FIDF decree could be seen as improper.

He said if the decree failed, political stability would be at risk.

"There is a high risk that the executive decree to transfer the FIDF debt would be declared void. The impact would be severe as the government would have to resign," MR Pridiyathorn said.

He said the decree would result in uncertainties over bank expenses and higher costs for consumers.

MR Pridiyathorn said the decree also undermines the limited deposit insurance programme and that public conflicts between the central bank and the Finance Ministry over the issue would hurt the country's credibility.

Prasarn Trairatvorakul, the central bank governor, said the bank had asked the government to delete a clause in an early draft of the decree that would have given the cabinet authority to order the transfer of bank assets at its discretion.

He said the central bank's preference is to only tap profits from the investment of foreign reserves rather than the reserves itself to cover the FIDF debt.

"In tapping the principal of the foreign reserves, the government would leave the liabilities with the central bank. Central bank assets would be used to pay down government liabilities. This is akin to printing money," Dr Prasarn said.

The decree was passed last week by cabinet together with others authorising 350 billion baht in investment in water management projects, the creation of a 50 billion baht flood insurance pool and a new low-interest loan programme for flood-hit companies and households.

Thai-ASEAN News Network - Central Bank Yet to Decide on Fee Increase

Central Bank Yet to Decide on Fee Increase

UPDATE : 13 January 2012

The Bank of Thailand has yet to conclude the issue of increasing fees paid by commercial banks to repay the 1.14 trillion baht of the Financial Institutions Development Fund's debt.

Banks have asked for more time before making any proposals to the central bank.


Bank of Thailand Governor Prasarn Trairatworakul met with commercial bank executives to discuss the government's draft decree which would transfer 1.14 trillion baht of the Financial Institutions Development Fund's debt to the central bank.

After the meeting, Prasarn said that both sides have yet to agree on the issue of a possible fee increase for commercial banks, from the current 0.4 percent of total deposits.

Commercial banks have admitted that they will be affected by the proposed fee increase and have asked for more time to study the issue before coming back to the central bank with a proposal which will not push the increased burden onto customers and reduce their competitiveness.

Meanwhile, CEO of Thanachart Bank Somjet Moosirilert said that the FIDF debt must be carefully and transparently managed.

It must be clearly stated who would be responsible and for how long the debt repayment will take as the issue affects many parties, including commercial banks, the government and consumers.

Initially, the Bank of Thailand has recommended a small fee hike, from the current 0.4 percent of total deposits, but will also include short-term bills of exchange.

The central bank believes that with this, it would be able to lower the debt and interest to a certain extent.

The bank will submit this to the finance minister for consideration next week.