Senators to fight FIDF debt switch | Bangkok Post: news

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Senators to fight FIDF debt switch

Petition seeks ruling on legality of decree

A group of senators will file a court challenge against the government's transfer of financial crisis bailout debt to the Financial Institutions Development Fund next week.

Kamnoon: Principle must be observed

Sen Kamnoon Sidhisamarn said a petition would be filed to the Senate speaker to seek a ruling on the legality of the emergency decree authorising the debt transfer passed yesterday.

He said senators questioned the need for the government's urgency in pushing forward the decree.

"If the government says funds are needed to safeguard the country or economic security, then fine," he said.

"Using our right to seek a court interpretation doesn't mean we disagree with investing in water management projects. But we want a principle to be observed, where the use of public funds is managed properly through the budget laws."

The government has argued that shifting responsibility for 1.14 trillion baht in debt built up during the 1997 crisis to the FIDF would help free up 65 billion baht a year from the budget, and more importantly give the authorities room to take out new debt to finance its water management plans.

The FIDF decree was made law yesterday with three other decrees, which will authorise spending of up to 350 billion baht on water management programmes and create a 50 billion baht flood insurance fund and a low-interest loan programme for flood victims.

Mr Kamnoon compared the water management programmes to the Thai Khem Kaeng programme, launched by the Abhisit Vejjajiva government to help stimulate the economy following the 2008 global economic downturn.

"There is 60 billion baht that still has not been disbursed for Thai Khem Kaeng, funds that were borrowed and incur costs for the state," he said.

"And Thai Khem Kaeng involved small-scale projects, far different from the large programmes planned under the 350 billion baht plan."

Mr Kamnoon said infrastructure projects would take time to implement, given the need for public hearings as required under the constitution.

Meanwhile, Korn Chatikavanij, deputy leader of the opposition Democrat Party, said he would also file a challenge with the Constitution Court on Monday against the FIDF decree and the decree authorising new loans for water management and basic infrastructure programmes.

At the Bank of Thailand, governor Prasarn Trairatvorakul said regulators and the Finance Ministry would discuss how to manage the FIDF debt while minimising the impact on banks and consumers.

The decree authorises the FIDF to collect a surcharge of up to 1% of deposits from local banks to help pay off the debt. Bankers have opposed the plan saying it unfairly increases their costs.

But Dr Prasarn said the FIDF liabilities were manageable given the improvement in the Thai economy over the past decade.

He said the final decree was drafted following consultations between the government and the central bank.

Bank regulators estimate that the interest costs on the FIDF liabilities can be financed through a combination of the existing 0.4% charge on deposits levied on local banks, gains by local banks from planned corporate tax cuts and returns from central bank operations and assets.

Dr Prasarn said one concern was that imposing a tariff on banks would hurt their competitiveness relative to state-owned financial institutions, which currently do not pay a 0.4% charge for deposit insurance.

Dr Prasarn said Finance Minister Kittiratt Na-Ranong had committed to ensuring that state banks such as the Government Savings Bank do not directly compete with private banks.

The FIDF debt, equivalent to nearly 10% of gross domestic product, stems from a government guarantee of depositors and creditors of failed banks during the 1997 crisis. Under past agreements between the central bank and the government, interest on the debt was to be paid through the budget while the principal debt would come from profits earned by the central bank.

But the government's plans to borrow heavily to invest in new water management, energy and transport infrastructure prompted authorities to shift the obligations back to the FIDF. This has essentially shifted the debt burden away from the government budget and taxpayers to the banks and the general public, as expenses will inevitably be passed on to consumers in the form of lower returns for depositors and higher costs for borrowers.

Supavud Saicheua, managing director of Phatra Securities, said in fact, the banks, the central bank and the government should all contribute to paying the FIDF debt.

He warned that shifting funds now earmarked for deposit protection programmes would result in new risks for the government. At the same time, high levies on local banks would distort the financial market.

Dr Supavud said a special business tax could be imposed on banks instead.

"Banks have enjoyed the benefit of a sound financial system resulting from the FIDF's intervention [in the past], and its liabilities have remained a legacy of the crisis for taxpayers," he said.

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Writer: Aekarach Sattaburuth and Parista Yuthamanop

Your comments

  • Discussion 14 : 29/01/2012 at 04:58 PM14

    thiswayup D9 - "I was under the impression that Mr. T had cleared all of the debt from the 97 Financial Crisis by about 1994."
    Half the debt was paid off by 2006.
    "What happened?"
    The coup, the 2007 world financial crises, AV's expensive populist policies, AV's doubling of the military budget, and the 2011 flood.

  • Discussion 13 : 29/01/2012 at 11:48 AM13

    ggh D1 - The crises was the result of a poorly managed floating of the Thai baht. It then triggered an Asian-wide financial meltdown, causing businesses across the continent the fail. The banks were then stuck with the massive debt, of which was bailed out by a loan from the World Bank.

  • Discussion 12 : 28/01/2012 at 08:46 PM12

    Bypass debate in Parliament, and you bypass transparency completely. This government promised transparency in all money matters now they are going against that too.

  • Discussion 11 : 28/01/2012 at 05:13 PM11

    ggh ps may be the Bangkok post could look into it.

  • Discussion 10 : 28/01/2012 at 05:11 PM10

    ggh May be it is because some large share holders of the banks are in high places,Get my drift?

  • Discussion 9 : 28/01/2012 at 04:02 PM9

    What should be being done by the Government is figuring out how to pay this debt down, not how to shift it around to borrow more money.

    Do they think that it is Financially Responsible to throw 60 Billion Baht per year down the drain for another 15 years?

    This country has a lot of plans to spend this country into Bankruptcy. They should take a lesson from Europe and the United States.

    Continued borrowing and increasing deficits will bring Thailand down. Who is this money owed to anyway, as in who is getting the 60 Billion per year interest?

    I was under the impression that Mr. T had cleared all of the debt from the 97 Financial Crisis by about 1994. What happened? More creative book keeping to look good in the eyes of the sheep?

  • dao

    ThailandPost : 1820

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    Discussion 8 : 28/01/2012 at 02:20 PM8

    Enjoy the massive debt .I hope we have the IMF on speed dial .

  • Discussion 7 : 28/01/2012 at 12:37 PM7

    The senators appear to lobbying on behalf of the banks and, to the extent that that is true, should not be taken too seriously by the court or anybody else. These liabilities financed a bailout of the banks during the 1997 financial crisis, so in priciple it is surely correct that as soon as they are a position to do so, the banks and not the taxpayer should shoulder the lions share of the burden of paying them off.

  • Discussion 6 : 28/01/2012 at 12:25 PM6

    As a minimum when reporting on what Senators do or not do then it would be nice to know whether we are talking about a Senator elected by voters or one of the many that are elected by influential people ... and in that case who elected him ... just to get an idea about who and which interests he/she is lobbying for .
    The sooner that the Senate is being 100% elected by voters, the better, requires a reversal of the last constitution.

  • ginger

    Discussion 5 : 28/01/2012 at 11:35 AM5

    I bet on the fact that these senators are the unelected ones and I bet they are lobbyists for the banks. It is quite frankly absurd that the Thai tax payer should pay for the rubbish that the Central bank and the banks created during the 1997 crisis. Of course the banks should pay this back themselves.
    from iPhone application.

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