THE outcome of the Senate-vetted bankruptcy bills will determine whether the payment culture in Thailand will stay or go, said Banthoon Lamsam, the chairman of the Thai Bankers' Association.

Banthoon on Wednesday joined Tawee Butsunthron, the chairman of the Federation of Thai Industries, and Vichien Tejaphaibul, the chairman of the Board of Trade of Thailand, to issue a joint statement supporting the Chuan government's legislative drive to pass the impending bankruptcy laws.

The statement represents a compromise between creditors and debtors in the private sector, who have come to realise that in the absence of a definite legal framework the payment and credit culture of Thailand will be completely destroyed.

''We don't mind the details in the legislation. The important thing is that whatever comes out from the legislative process should not support the rising non-payment culture,'' said Banthoon.

''The passage of the laws must create a huge psychological impact over the benefits of being a good debtor. Now there is a misconception that being a bad debtor is more advantageous than being a good debtor,'' he said.

As president of the Thai Farmers Bank, Banthoon could not have aired his frustration better over the rising non-performing loans (NPLs) in the banking system, a significant percentage of which accounts for strategic non-payers or those who can repay the loans but have chosen not to do so.

If there is no confidence in the legal framework or if the number of debtors defaulting on their borrowings, intentionally or unintentionally, continues to rise, eventually no Thai bank can survive and the government will have to step in with a more costly bail-out.

At present, the NPLs of Thai banks have risen to Bt2.73 trillion, or 43 per cent of total loans. An effective bankruptcy and foreclosure process is needed to clean up these NPLs and make Thai companies move again.

Without corporate debt restructuring, Thailand will continue to muddle in a recession without any chance of a recovery.

''We don't want to go so far as to sue people into bankruptcy. What we want is good rules put in place so that people who have borrowed money will try to do their best to repay their debts,'' Banthoon said.

''Anyway, it is true that at present there are too few rewards for good debtors, while there is punishment for bad debtors. This is the weak point of the Thai legal framework. The standards of the financial system has been dominated by bad debtors who may be admired by others when they deliberately decide not to pay debts, although they have the ability to pay. But if it keeps going like this, the financial system will collapse,'' he said.

At stake is the on-going viability of the Thai economic system, which can only function with confidence in the financial system and the rule of law.

The credit system, the lifeblood of the economic system, has stopped to function and the government is trying to breath new life into it through legal structural reforms. If the credit culture is completely destroyed, it will take time to recreate, possibly a decade.

Moreover, if the financial system does collapse, the cost of bailing it out will be born by all the 60 million Thais who are tax-payers.

As the government has guaranteed public deposits and bank debts, loan defaults or financial damage suffered by banks will eventually be paid for by the Financial Institution Development Fund (FIDF), an arm of the government. Compensation from the FIDF will have to come from the national budget.

The Senate is attempting to water down the bankruptcy bills -- from the length of the bankruptcy period to personal guarantees -- to give more protection to debtors.

Banthoon emphasised that the message from the Senate-revised bankruptcy bills should not give the impression that there is nothing wrong if people don't repay debts.

''And if I were a debtor now (given the impression from the revised bankruptcy bills), I would feel it that way,'' he said.

Vincent Milton, a banking analyst at Fitch IBCA, said the international community is watching the Thai legislative process on the bankruptcy and foreclosure bills closely with the understanding that in a parliamentary-style democratic system it needs to go through its own due process.

But he added that it is in Thailand's best interest to pass the laws in a timely and effective manner so that they become a foundation for Thai economic recovery and future strength which will benefit all Thais.

Milton also urged Thailand to continue its reform process to prepare for the recovery.

''Thailand is moving along the right track, and it will recover. It is half way through. But if it decides to turn back against reforms, Thailand risks being driven back to the crisis of the first half of 1997,'' he said.

Banthoon also expressed his concern over the slow process of debt restructuring, which is very important to help economic recovery.

Several obstacles emerged as a deadlock preventing Thailand from speeding up the debt restructuring process.

''The nightmare for bankers is when their debtors decline to repay debts. We have now devoted all our energy to debt restructuring. The debt restructuring department has been very busy all the time. All banks are struggling with the same problem. The problem loans have now risen to almost half of total loans. We, in fact, have not enough manpower to restructure all of them,'' Banthoon said.

He added that the biggest problem for the Thai financial system was not the ability to recapitalise or the level of interest rates but the rising number of strategic non-payers of loans.

To break the deadlock, rewards for good debtors should be increased and punishment for bad debtors made more efficient, he said.

In the developed financial markets, the rewards for good debtors who regularly repay their debts is good credit, which is translated into low costs of funds. And they become the darlings of all lenders in the long term.

The punishment for bad debtors is the loss of credit standing, making it difficult for them to apply for new credit or do business.