BOT wants section of FIDF decree scrapped

According to BOT Governor Prasarn Trairatvorakul, Deputy Prime Minister Kittiratt Na-Ranong agreed to look into the matter in consultation with the Council of State. They met yesterday to discuss the serious concerns over Section 7, particularly its third clause. The central bank also dispatched a team to the Council of State to explain its reasons for the removal request.

“We’re concerned with the entire section, particularly Section 7 (3), which states that the central bank’s assets are transferable,” Prasarn told reporters. Kittiratt told him that he had no intentions of this kind whatsoever and would ask the Council of State to make an amendment. Prasarn said he would be pleased if the entire section were scrapped.

Under the clause, even without any income, the central bank can be ordered to transfer assets to the Finance Ministry. This could bind it to print money if ordered to. Section 7 (1) requires the central bank to deliver at least 90 per cent of profits to the Finance Ministry, against the Bank of Thailand Act’s stipulation that such transfers cover only profits after loss deduction.

Prasarn said more discussion was necessary, as the decree could override the main laws.
More than 20 monks and followers of Luangta Maha Bua, the late, highly revered Buddhist monk whose donation campaign helped boost foreign reserves after the 1997 financial crisis, yesterday submitted a petition to Kittiratt calling for the cancellation of the decree.    
The decree is designed to tackle the FIDF’s Bt1.14 trillion debts. Principally, it stipulates the transfer of debt-management oversight to the BOT and allows the central bank to raise surcharges on financial institutions to pay the annual interest.


While defending the appropriateness of such a move, Finance Minister Thirachai Phuvanatnaranubala yesterday said in an interview with Nation Channel that monetary and fiscal discipline must not be breached. That means the central bank would not be ordered to print money and the reserves would not be touched, as doing either could affect confidence in the institution as well as the entire economy.
He added that it was appropriate for the central bank to raise fees from financial institutions to pay the FIDF interest, which could total Bt45 billion this year.
“A full-cycle solution [where the financial system takes care of its debt arising from the financial crisis] would increase confidence in the Thai financial system,” he said.

The BOT will convene a meeting next week with the Thai Bankers Association over a plan to increase surcharges from 0.4 per cent of deposits (or about Bt34 billion) to 1 per cent, to help pay the interest. Prasarn said the surcharges might not reach 1 per cent, to collect Bt45 billion, but higher costs might affect their competitiveness as the Asean Economic Community comes into effect in 2015.
Without the “overriding” clauses, the BOT sees no problem in taking over the FIDF debt. While the interest burden is taken care of, the BOT would discuss with the Finance Ministry a specific period to clear the principal, say 25 years.
Prasarn said he was pleased with the rest of the decree, which stipulates that the FIDF debts still belong to the Finance Ministry but the debt-management oversight will go to the central bank.
 
"If (the debt) is transferred to the central bank, we would not be able to fully function in maintaining economic stability," Prasarn said.

Based on the deposits of Bt7.7 trillion, 1 percentage point is equivalent to Bt77 billion.
 Public Debt Management Office's chief Chakkrit said that if Bt50 billion is used to repay the FIDF interest, the remaining sum could be used to reduce the principal. He believed that plus some operating profits from the Bank of Thailand, the FIDF's debts could be cleared within 30 years.
 FIDF is now rolling over the debts and only interest is covered. In 2012, some Bt300 billion FIDF bonds would mature. So far, the government has paid over Bt600 billion for the interest payment, Chakkrit said. To date, the central bank's profits have cut the debt amount by only Bt200 billion.