The Bank of Thailand is awaiting clarity on the new executive decree shifting 1.14 trillion baht in debt from the post-1997 financial bailout from the government to the central bank, says governor Prasarn Trairatvorakul.
The bill passed by the cabinet on Jan 10 would effectively force the central bank to manage the principal and interest liabilities of the Financial Institutions Development Fund (FIDF).
The decree sparked concern over the government's handling of the law, with some senators and opposition MPs planning to petition the Constitution Court.
It also stirred strife with the administration and the central bank, which said it had no say in vetting the bill.
"We were not included in the drafting process. We have never seen the draft ahead of the cabinet's considerations," Dr Prasarn said. "But we did seek clarification [with the government] of the draft, as some groups such as Luang Ta Mahabua's disciples wanted to be certain of the text regarding official reserves."
The central bank has so far planned to fund part of the interest burden with a rotating 0.4% tariff on private banks' deposits. But the bill has created ripples as it gives the central bank room to raise the levy up to a hefty 1% of deposit.
Dr Prasarn said the Thai Bankers' Association in a statement issued last week indicated its concerns that the law did not mention other financial sources to pay the FIDF liabilities.
Under the two agreements made separately in 1998 and 2002, the Finance Ministry is entitled to earmark the central bank's net profit after accumulated loss and transfer returns from official reserves revaluation to pay down the principal.
"The framework set out in the decree was a distortion from the start, as it is the Finance Ministry, as opposed to the central bank, that has the tax authority," said Dr Prasarn.
He said the central bank had requested the ministry impose a levy on specialised financial institutions that are in state hands, as some of them have increasingly been in direct competition with banks.
He recommends the government increase fiscal revenue by abolishing some tax exemptions such as those on long-term mutual funds, or by cutting unnecessary spending, rather than by juggling the public debt, which is akin to "window-dressing" accounts.
Meanwhile, the commercial banks can do nothing but wait for the final rate implementation under the decree, said Banthoon Lamsam, the president and chief executive of Kasikornbank.
He insisted the policy is distortive, saying the fee falls solely on commercial banks in a market with two types of financial institutions.
Kosit Panpiemras, the executive chairman of Bangkok Bank, said the government's move would lead to inefficiency in monetary policy because it regulates only a part of the financial system _ empowering fiscal policy and causing an imbalance between fiscal and monetary policy.
"Such a policy will only create a wider spread between loan and deposit rates," Mr Kosit said. "Monetary policy will be non-functional from market distortions."