With 560 billion in interest already paid, but original crisis debt still unpaid, is it time to risk foreign reserves in higher return investments?
Professor of economics and former Assistant US Treasury Secretary Brad De Long's short but sweet observation may be pertinent to today's article:
"...central bankers have finally learned how to do their jobs. Before 1985, according to this theory, central bankers switched their objectives from year to year. One year, they might seek to control inflation, but the previous year they sought to reduce unemployment, and next year they might try to lower the government’s debt refinancing costs, and the year after that they might worry about keeping the exchange rate at whatever value their political masters preferred. The lack of far-sighted decision-making on the part of central bankers meant that economic policy lurched from stop to go; to accelerate to slow down. When added to the normal shocks that afflict the world economy, this source of destabilising volatility created the unstable world before 1987 that led many to wonder why somebody like Greenspan would want the job." (Source: Brad De Long writing for Project Syndicate in 2007)
Click button to listen to 1997 Crisis Debt Pay Off to download
ECONOMY: BoT in hot seat again over debts by Wichit Chantanusornsiri
The new government wasted no time reigniting the longstanding debate with the Bank of Thailand about how to pay down the massive debts still on the books from the financial sector bailout of 1997.
The central bank is facing criticism for its currency and reserve management policies, which detractors blame for keeping the 1.14 trillion baht in liabilities of the Financial Institutions Development Fund (FIDF) stubbornly high.
Last year the Finance Ministry paid 65 billion baht in interest on FIDF liabilities, and the figure is expected to reach 80 billion this year because interest rates are rising.
Since the FIDF was set up, the ministry has paid 560 billion baht in interest but the principal amount has remained almost unchanged.
During the previous Democrat-led government, ministry officials and the central bank governor were unable to resolve the debt.
Thirachai Phuvanatnaranubala, the new finance minister, made his unhappiness clear on his first day in office. But MR Chatumongol Sonakul, the chairman of the central bank, said the Finance Ministry was responsible for the FIDF debt because it issues the bonds used to refinance it.
Chakkrit Parapuntakul, the head of the Public Debt Management Office, said yesterday the FIDF liabilities would never be paid unless the central bank compromises on its baht intervention and relaxes its approach to curbing inflation.
He said the central bank manages to absorb liquidity from the market to keep inflation below its core inflation target at 3%, while lifting interest rates in order to encourage financial institutions to buy the treasury bills it issues to extract liquidity out of system.
Once interest rates rise, he says, more capital is attracted to Thailand, pushing inflation up again, which leads to a vicious cycle and a deadlock for central bank.
As well, said Mr Chakkrit, the central bank bears higher costs than the market average, while it invests in assets that offer low returns.
"If the central bank keeps doing this, it is not possible for it to turn a profit," he said.
In his view, instead of issuing bonds to help absorb liquidity, the central bank should seek ways to make more profits from the liquid assets it already holds. To date, the Bank of Thailand has issued bills worth 5 trillion baht in total.
The central bank began using inflation targeting in 2000 with core inflation, which excludes energy and raw food prices, as the key factor in its decisions on interest rates
Mr Chakkrit also expressed concern about the central bank's tendency to tame the pace of baht appreciation to favour the export sector. The cost of baht intervention is high, resulting in continuing losses on its balance.
Mr Chakkrit said the central bank had total reserves of US$189 billion or 5.6 trillion baht, which are the country's assets, yet it posts losses of 200 billion baht a year. Its liabilities total 4.2 trillion, with interest and principal payments of 200 billion baht per year.
"Considering the balance sheet, it is clear that we have to consider how to make a profit from the huge assets to reduce the liabilities side," he said.
(Source: Bangkok Post, ECONOMY, BoT in hot seat again over debts, 17/08/2011, Wichit Chantanusornsiri, link)
principal - the amount of money borrowed in a loan that remains to be paid back เงินต้น
interest - payments made for the use of another's money for a period of time ดอกเบี้ย
debt - an amount of money that you owe หนี้
massive - very large in size, amount or numberใหญ่โต มหาศาล
massive debt - very large debt
pay down debt - pay back principal, the amount borrowed (reduce the amount of money that interest has to be paid on each year)
debt on the books - debt that a company has (recorded in their accounting records = "books")
inflation - the level of prices rising in the economy as a whole, also called "headline inflation" (See Wikipedia and The Economist glossary) ภาวะเงินเฟ้อ
curb inflation - stop or reduce inflation
inflation targeting - adjusting monetary policy and interest rates upwards and downwards based on forecast inflation in order to keep future inflation within a given range (See Wikipedia)
Consumer Price Index (CPI) - a measure of the average price of consumer goods and services purchased by households (See Wikipedia)
core - the most important and central part แก่น สิ่งที่สำคัญที่สุด
core inflation - consumer price inflation (CPI) excluding the prices of more volatile goods such as energy and oil and food (See Wikipedia) การสูงขึ้นของราคาสินค้าจำเป็น เช่น น้ำมัน อาหาร พลังงาน
target - the goal; the amount you are planning to achieve เป้าหมาย
core inflation target - the level of core inflation that the central bank wishes to stay under or near
approach - a way of doing some activity or dealing with some problem การจัดการกับปัญหา วิธีการทำให้ถึงจุดหมาย
approach to curbing inflation - a way of stopping or reducing inflation
currency - a widely used the money accepted for exchange of goods in an economy เงินตรา (See Wikipedia)
reserves - foreign reserves (more general meaning: supplies for future use; something currently not being used but that can be used when needed สำรองไว้)
foreign reserves - the amount of foreign currency or gold held by a central bank, which is used for dealing with the national banks of other countries เงินสำรอง
1997 economic crisis - 1997 Asian financial crisis (See Wikipedia)
sector - a part of the economy ภาคเศรษฐกิจของประเทศ (public sector = government, private sector = all businesses, household sector = families and consumers, banking sector,...) (See Wikipedia)
financial sector - all the companies that deal with finance (borrowing and lending money, raising money on the stock market)
bailout - help in the form of money to prevent failure and bankruptcy ช่วยไม่ให้ธุรกิจล้มละลาย (See glossary)
Financial Institutions Development Fund (FIDF) - a fund managed by the Bank of Thailand that played a key role in rescuing failing financial institutions after the 1997 crisis
liabilities - debts, money that a company owes others หนี้สิน หนี้ขององค์กร money borrowed by a company (liabilities + owners' equity = assets)
FIDF liabilities - the money that FIDF still owes (the interest plus principal that remains to be paid back)
central bank - the government's bank that controls all the other banks in a country, sets monetary policy, maintains the stability of the national currency and money supply, sets interest rates and inflation targets, saves failing banks as a lender of last resort during times of financial crisis (See Wikipedia)
Bank of Thailand (BoT) - Thailand's central bank (Read description at Mahidol University)
in hot seat - in a difficult position or situation (difficult to deal with, problem difficult to solve)
longstanding - existing for a long time, been that way for a long time
debate - a discussion or formal argument on an issue between people with different views (See Wikipedia)
ignite - make something explode like a bomb (example: the bomb ignited and blew up half the building)
reignite - ignite again, explode again
reignite debate - start an energetic debate again
reignite longstanding debate - start the debate again (a debate that has been going on for a long time)
criticism (noun) - finding fault with something, find things that are wrong with something
critics (noun) - people who find fault, fault finders
critical (adjective) - related to the act of finding fault
detractors - critics, people who don't agree with something, who have criticisms of something (people who find fault with something, point out the things that are wrong with something)
currency and reserve management policies - the central bank uses monetary policy and foreign exchange reserve accumulation to control the exchange rate, to prevent the currency from appreciating and getting too valuable compared to other currencies, which would make Thai exports more expensive and less attractive and less competitive on world markets (monetary policy and exchange rate policy go together in open economies)
monetary policy - "the government or central bank process of managing money supply to achieve specific goals's”such as constraining inflation, maintaining an exchange rate, achieving full employment or economic growth. Monetary policy can involve changing certain interest rates, either directly or indirectly through open market operations, setting reserve requirements, or trading in foreign exchange markets" (See Wikipedia)
open economy - an economy in which exports and import (international trade) make up a large fraction of national income (GDP)
stubborn - will not do something, will not change (even though they have been asked many times)
keep stubbornly high - it is kept at a high level (and some people don't want it that way but they refuse to change it to make these people happy)
figure - an amount of money จำนวนเงิน
expected - believe will happen คาดว่า (จะเกิดขึ้น)
resolve - find a solution to and solve a problem, difficulty, or argument; find a satisfactory way of dealing with it แก้ไขปัญหา หาทางแก้ปัญหา
finance - to provide money for something, borrowing money to pay for something จัดหาเงินทุนให้
ministry - a government department dealing with an area of activity กระทรวง (here: the Finance Ministry)
Finance Ministry - the government ministry that manages government finance, manages tax collection, the budgeting and disbursement of government spending and financing government spending by issuing government bonds if tax collections do not pay for government spending
Finance Minister - the high level government official in the Prime Minister's cabinet who is head of the Finance Ministry
clear - easy to understand
made his unhappiness clear - showed that he was not happy (and very easy to see this)
bond - a formal contract to repay borrowed money with interest at fixed intervals, a paper certificate is issued much like a stock certificate (See Wikipedia) พันธบัตร
issue bonds - sell a new set of bonds for the first time
issues the bonds used to refinance - issues the bonds used to pay for it (when bonds finish (reach the end of their maturity) they have to be "refinanced")
public debt - government debt (money that the government has to borrow to pay for government spending when taxes are not enough to pay for the spending)
compromises - things you give up in order to reach an agreement with others
intervention - becoming involved in a situation and trying to change it การแทรกแซง (here: foreign exchange intervention)
foreign exchange intervention - when the central bank buys and sells in foreign currency markets to influence the baht exchange rate
compromises on its baht intervention - change the way they do baht intervention (to make other people happy)
relax - make less severe or strict
relaxes its approach to curbing inflation - make their approach to stopping inflation less severe and strict
liquidity - the speed that an asset can be turned into cash (cash is 100% liquid, a savings account a little less, a time deposit a lot less) สภาพคล่อง
market liquidity - the speed and ease that an asset can be sold in a market (reducing it to cash)
absorb - to take in substance from area around something (example: the sponge absorbed water quickly) ซึมซับ ดูดกลืน
absorb liquidity from the market - take liquidity out of financial markets (which means there is less money for investment, less money for loans and stocks)
extract - take out
extract liquidity out of system - take liquidity out of the system, roughly same as "absorb liquidity from the market"
institutions - large and important organizations, such as universities or banks สถาบัน
financial institutions - banks and other bank-like companies (doing the same sort of activity as banks, lending money and investing money for people)
encourage - make people interested in and excited about doing an activity; give energy to continue doing activity, motivate ปลุกใจ
encourage financial institutions - take action to make banks do something
treasury - the government department in the US responsible for financial matters such as spending and taxation (in Thailand called the Finance Ministry) ระบบการคลัง
treasury bills - US Treasury Bills, a US Treasury "debt security" issued for the shortest period of time (maturity) for one year or less, used by the US government to pay for the usual spending deficit when taxes collected do not cover government spending, the investment in the US with lowest level of risk (See Wikipedia)
capital - money invested in a business (See glossary)
cycle - a series of events repeated over and over again (in the same order)
vicious cycle - a problem that leads to more problems so the situation gets worse and worse, also called a "vicious circle" (See Wikipedia)
deadlock - a situation in which progress cannot be made (stuck at one place and cannot move forward)
bears higher costs - has to pay higher costs, pay larger amounts of mone ("bear" here meaning "bear a burden" which means "have a difficult responsibility")
assets - a thing of value that a person, company or organization owns, for example: stocks, bonds, real estate, loans to others, or money (See Economist glossary) ทรัพย์สิน
low returns - the results of an election ผลการเลือกตั้ง
profit - money that an organization makes from selling goods and services after all costs are paid กำไร
turn a profit - when a company makes a profit (is profitable instead of losing money or just breaking even)
issuing - officially giving something to people ออกคำสั่ง
issued - made available ออกใหม่
raw - materials in their natural state before being processed or used in manufacturing
raw food - food before it is processed and turned into food products or sold in a restaurant (a food can be considered "raw" if it has not been heated above 46 degrees Celsius and hasn't been frozen) (See Google Definitions)
key - important คนสำคัญ
factor - a fact or situation which influences the result of something ปัจจัย
concern - a worry ความกังวล
expressed concern about - said they were worried about
tame (noun) - not wild or fierce, an animal becomes "tame" either naturally or because of training or long involvement with humans เชื่อง (สัตว์)
tame (verb) - to make a wild animal not wild ("domesticate" the animal)
pace - the speed and rhythm at which something happens ท่างทำนอง ย่างก้าว จังหวะ ที่สิ่งต่างๆ ดำเนินไป (See glossary)
appreciation - when a country's currency becomes more valuable compared to the currencies of other countries (which makes goods exported from the country more expensive)
favour - to give an advantage to someone or something, often in an unfair way ช่วยเหลือ something you do for someone in order to help them สิ่งที่ทำให้เป็นพิเศษด้วยความชื่นชม
tame the pace of baht appreciation to favour the export sector - slow or stop the baht from rising in value compared to other currencies, in order to keep Thai exports cheap and competitive compared to the exports of other countries
post losses - when a company record losses (in its accounting system or financial reporting)
balance sheet - report showing financial state of a company at a point in time (assets + money owed (liabilities) + owner's equity (current value to owners))
asset - a thing of value owned by a company or household such as property. money, or the right to receive payments in the future สินทรัพย์
liability - debt, an amount of money that a company or household owes to another หนี้สิน
owner's equity - the current value of a company calculated by: assets - liabilities, also known as "equity" or "net worth" ส่วนของเจ้าของ
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