Debt plan will reduce confidence

It is part of a plan to increase government power at the expense of the 15 private commercial banks and to create a Dubai-style sovereign wealth fund, which will be invested in places other than Thailand.

The worst of this plan is that it transfers BOT debt from the 1997 financial crisis to Thailand’s banks under the claim it will “increase confidence” if the surviving banks take care of the others’ old debts. How can Thailand’s 15 banks afford this and why should they? Why should X Bank be responsible for the debts created by the Bangkok Bank of Commerce (BBC) collapse, which was caused not by them but by the BOT’s years of lack of proper supervision and then its costly and failed baht defence?

You could argue that this is a very left-wing attack on the Thai banking system, the cornerstone of the private sector, and a show of government power.

The FIDF, or “lifeboat scheme” as it used to be called, was created on April 4, 1984 as a result of the Raja Finance crisis starting in 1979 and Asia Trust Bank crisis in 1984. At the time, Thailand had four main types of financial institutions – commercial banks, finance companies, securities companies and credit foncier companies.

Starting in 1984, the lifeboat scheme took stakes in Thailand’s finance companies and effectively sold them to the big family groups, which were seen as being financially strong enough to be able to look after them. In 1997, the government permanently closed 56 of the finance companies as part of the IMF bailout, including the largest, Finance One. The assets of these companies were transferred to the lifeboat scheme. 

The Financial Sector Restructuring Authority (FRA) sold off all the assets. But when the FRA grouped lots of loans for auctioning off, what was largely known became apparent, which was that there was a lot of lending back and forth to the same big Bangkok-based family groups, and almost no corporate lending to the provinces. This showed a failure in the theory behind how the lifeboat scheme companies were sold off in the first place. The idea that the big Bangkok families are stewards of the country’s future was not totally right. It also showed that too much power is centralised in Bangkok.

The BOT’s master plan called for consolidation of the financial sector and now there are no finance companies and the banks have been merged. Many have suggested a country of Thailand’s size only needs five commercial banks.

The history shows there have been a lot of failed moves involving the BOT and lifeboat scheme, including a lack of independence demonstrated in the supervision of BBC, and the price is being paid today, as shown in the 1.3 trillion in debts. Between the government (BOT) and the private sector (current banks), this regulator has not done a good job and begs the question of why a country even needs a central bank. Thailand would have been better off during these various crises simply to let these institutions go bankrupt through the normal legal process. 

Contrary to what the government is saying in defence of the planned executive decree, the free market – not government interference – is what creates confidence with investors. 

People pay a big price for having to operate with a “licence” from the government and they are sheep in the face of state power. In Dubai, a small country, one person runs everything.

Pattaya Mike

Chonburi