Passing the buck to satisfy its own political agenda

The government’s decision to pass responsibility for the Bt1.14 trillion in public debt from the 1997 Asian financial crisis to the Bank of Thailand should be based on how to manage the debt burden effectively, not simply to pass the buck to another agency.
Nevertheless, it seems that the decision to pass on the debt responsibility from the Finance Ministry to the central bank is related to the government’s plan to borrow more public money to finance its populist policies and its flood-relief programmes. The government does not seem to have a better plan to improve its public debt management.
At present the Finance Ministry has to shoulder the 1997 debt repayment to the tune of Bt60 billion per year. As a result, the ministry does not have much flexibility in financing its investment programmes.
The Cabinet on Tuesday approved a Bt350 billion fund for investment in water-resources management. It will also establish an insurance fund pool of Bt50 billion to reassure foreign insurers of businesses. This new borrowing of about Bt400 billion will add to the already huge existing public debt. This will certainly put more pressure on the Finance Ministry because it will force the ministry to limit any unnecessary expenditure to ensure that the public debt level is maintained at a manageable level.
Deputy Prime Minister Kittiratt Na-Ranong said on Tuesday the Cabinet proposed that the central bank take on the Bt1.14 trillion in debts owed by the Financial Institutions Development Fund (FIDF), a financial arm of the central bank itself, after the government had managed this debt for 14 years.
Public debt currently stands at Bt4 trillion, or about 40 per cent of the gross domestic product (GDP). This includes the debts of the FIDF, which if transferred to the BOT would lower the public debt level to 30 per cent of GDP. Kittiratt argued that such a move would put the government in a better position to shoulder the new flood-recovery debt of Bt400 billion.
However, the government should instead put priority on how to effectively manage its outstanding and future debt, instead of simply passing the burden on to the Bank of Thailand in order to enable the government to borrow more money to finance its spending programmes.
While some may argue that the Bank of Thailand is well equipped with foreign reserves of around US$180 billion, this amount can be deceptive because the central bank has to consider exchange-risk losses from stabilising the level of the baht amidst the unpredictable global financial market. Central bank governor Prasarn Trairatvorakul said that the BOT currently holds negative equity of more than Bt400 billion.
In addition, the transfer of the debt burden could affect the credibility of Thailand’s monetary system because the central bank is in charge of protecting monetary stability. The additional burden from the FIDF could also affect the independence of the central bank.
The decision to pass the debt burden to the central bank could be seen as a move to put pressure on the BOT to relax its monetary policy. This is despite the fact that the government has more tools to deal with the public debt burden, such as fiscal policies and taxation.
It is understandable that the government will now need additional money in order to deal with the disastrous effects of the massive flood disaster. But the administration should instead reprioritise its spending plans instead of going all out with its populist schemes at the expense of the other institution’s operations.
The government should set a priority plan to manage its budget and fiscal policies more effectively by cutting unnecessary spending and preventing corruption. The latter is a big problem that could cause huge portions of the budget to be squandered. A massive budget does not guarantee any success in its management. Quite the contrary.