Senators to fight FIDF debt switch | Bangkok Post: news

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.