Kittiratt: BOT should assume more public debt

The Cabinet has approved a Bt350 billion fund for investment in water-resources management, Deputy Prime Minister Kittiratt Na-Ranong said yesterday. It will also establish an insurance fund pool of Bt50 billion to reassure foreign reinsurers, he said. This new borrowing of about Bt400 billion will add to existing public debts, he conceded. 

To manage the public debt effectively, Kittiratt said, the Cabinet has proposed that the Bank of Thailand (BOT) take back Bt1.1 trillion in debts owed by the Financial Institutions Development Fund (FIDF), a financial arm of the central bank. 

The government has managed this debt for 14 years, since the Asian financial crisis decimated the central bank’s international reserves, he said. 

But the BOT now has the capacity to handle the debt, Kittiratt said, as it has accumulated international reserves worth $180 billion (Bt5.66 trillion). He acknowledged that such a debt transfer from the government to the central bank could spark accusations of diminishing the bank’s independence.

Public debt currently stands at Bt4 trillion, or about 40 per cent of gross domestic product (GDP). This includes the debts of the FIDF, which if transferred to the BOT would lower the public debt to 30 per cent of GDP. Such a move would put the government in a better position to shoulder the new flood-recovery debt of Bt400 billion, he said. 

The central bank has long refused to take the debt back, arguing that it has incurred huge financial losses from exchange-rate interventions aimed at keeping the baht weak in order to enhance the competitiveness of exporters affected by the local currency’s appreciation against the US dollar. 

“The BOT can handle much larger costs deriving from exchange-rate operations; it should also be able to take care of this debt,” said Kittiratt. 

Kittiratt said the Cabinet also approved the amendment of a law to enable the BOT to provide soft loans to private firms and households affected by floods, as part of the government’s post-flood recovery efforts.

The government wants the central bank to provide loans of about Bt300 billion, he told reporters after the Cabinet meeting. 

The State Council will consult with the government on whether to issue an emergency decree or go through normal parliamentary channels for the borrowing and the amending of the law, he said.

 

Investor confidence is key

 

The top priority for industrial estates, meanwhile, is to restore investors’ confidence after the floods, the BOT said after discussions with the operators of Hi-Tech Industrial Estate, Bangpa-in Industrial Park and Nava Nakorn Industrial Estate.

Investor confidence will affect the restoration of the estates as well as new investment, the central bank said in an e-mailed report. The government should push for clarity in the water-resources management policy, especially in terms of investment support, it added.

Most investors will need to retain their manufacturing bases in Thailand due to their large investment in machinery and skilled labour, the report said. However, the government’s water-resources management policy has been delayed and is unclear, and that could prompt some firms to relocate their bases to other countries like Vietnam, China, Indonesia and Malaysia, it said. 

Several parent companies have already instructed their subsidiaries in Thailand to review the possibility of relocating their manufacturing bases, the report said. 

If relocation occurs, it would likely start with large companies, possibly prompting their supply-chain companies to follow, the report said.