PUBLIC DEBT

The Bank of Thailand has begun servicing debt owed by the Financial Institutions Development Fund (FIDF) under a legal amendment made earlier in 2012.

But debt payments by the central bank have been made only to service interest expenses on the liabilities, with only minor payments made against the principal of the liabilities, incurred from the bailout of ailing banks and finance companies during the 1997 economic crisis.

For October and November, representing the first two months of fiscal 2013, the central bank repaid 6.63 billion baht in debt owed by the FIDF, of which just 68 million went towards principal payments.

Total liabilities owed by the FIDF amount to 1.14 trillion baht, of which 159 billion baht in debt is set to mature in fiscal 2013.

Interest expenses for the current fiscal year are estimated at 50 billion baht.

The government early in 2012 announced responsibility for the debt would be shifted to the central bank from the Finance Ministry.

The central bank in turn will finance the costs by diverting levies charged against bank deposits held at local banks.

Of the total fee of 0.47% of deposits collected by the central bank, just 0.01% will go to the Deposit Protection Agency, with the rest shifted to cover the FIDF liabilities.

Officials estimate that given current debt trends, it will take more than 30 years before total liabilities are paid off.

The Public Debt Management Office previously estimated if the central bank collects the maximum 1% of deposits levy on local banks, then FIDF liabilities could be paid within three decades.

The decree shifting responsibility for the FIDF debt has helped to reduce expenses for the central government, which over the past decade has had to allocate 50-60 billion baht a year to cover interest expenses on the liabilities.

Over the past 13 years, total FIDF debt has declined by some 200 billion baht from an original outstanding amount of 1.39 trillion.

Total interest payments made since the crisis have totalled more than 600 billion baht.

While relatively large in nominal terms, officials say the debt burden should become more manageable with time, as the economy continues to grow.

Thailand's gross domestic product, now at 11 trillion baht, could reach 20 trillion within the next 10 years. Revenue from deposit tariffs should also rise.