BOT wants details on debt-transfer plan

The issue needs further discussion and the central bank is ready to clarify its position on the matter should the government request it, BOT Governor Prasarn Trairatvorakul said.

Prasarn said the central bank had already clarified its position on the issue to the Finance Ministry once, and would insist that the FIDF debt does not belong to the central bank. The debt was incurred as the result of a Cabinet resolution during the bailout of financial institutions following the 1997 crisis.

Transferring the debt to the central bank, which already has negative equity of Bt400 billion, could affect the bank’s credibility, Prasarn said, adding that if the central bank receives the debt, its equity will be negative Bt1.5 trillion, which could harm confidence.

Prasarn said it was quite strange that the government had not discussed the debt transfer officially with the central bank before bringing the issue to the Cabinet, adding that the move could raise a question on the BOT’s ability to continue to run monetary policy independently.

Responding to the Cabinet’s rejection of the BOT’s proposed 2012 inflation target, Prasarn asserted that the central bank would continue to use the existing target for core inflation of between 0.5-3.0 per cent.

The new target focuses on headline inflation, rather than core inflation, at a rate of 3 per cent, plus or minus 1.5 percentage points.

The Cabinet’s rejection of the BOT’s target would have no impact on monetary policy, but could affect the financial markets if foreign investors question which inflation target will be used for Thailand, Prasarn said.

After receiving clear details from the Finance Ministry, the central bank will take the issue to its Monetary Policy Committee, which will convene on January 25.

Regarding the proposal to extend Bt300 billion in soft loans, the government will announce details soon, Prasarn said. The soft-loan plan, which is now before the State Council, is expected to start in early 2012.

Deputy Prime Minister Kittiratt Na-Ranong pondered the issuance of a law, to enforce the transfer of Financial Institutions Development Fund (FIDF)'s debts from the Finance Ministry to the Bank of Thailand.
 Yesterday, he insisted that the central bank is financially strong enough to handle the Bt1.14 trillion debts on its own.
 The Cabinet on Tuesday endorsed the proposed transfer. Kittiratt is tasked to discuss the plan in detail with the Finance Ministry, Bank of Thailand, Budget Bureau, the National Economic and Social Development Board and the Council of State.
 He noted that if the central bank still refuses to take care of the debts, a law would be issued to force such transfer.