Thailand needs progress and not dispute
July 30, 1999 -- THAILAND should move forward rather than permit a dispute over who should pay for damage due to the financial crisis, which has been acting as a drag on corporate debt restructuring and financial sector reform and hampering the momentum of economic recovery -- according to sharp warnings from top World Bank economists and analysts.
Joseph Stiglitz, the World Bank's chief economist and senior vice president, indicated that Thailand's corporate debt restructuring and financial sector reform, which are crucial to economic recovery, had not moved ahead at a satisfactory pace because all the parties involved are still in dispute over who should pay for past mistakes.
Instead of getting over the imprudent loans or bad investment projects of the past, both creditors and Thai debtors are still at loggerheads over how much damage each party is ready to accept, most of the time ending up with no decisions being taken at all over how to restructure bad loans.
''You should not let this issue prevent you from moving forward,'' Stiglitz said. Indeed, the slow progress of corporate debt restructuring and banking reform is holding hostage the prospect of Thai economic recovery because indebted companies with a viable chance of doing business have been denied access to credit.
Stiglitz emphasised a need for Thai companies to be able to borrow from banks again if they are to be expected to contribute to the recovery, which at this point is in need of fiscal support in boosting aggregate demand.
Ijaz Nabi, World Bank lead economist for Thailand and Malaysia, also admitted that progress on corporate debt restructuring had not moved ahead at the pace the World Bank or most people would like to see, although the legal framework has been in place since March this year.
''The legal framework has not yet been fully tested,'' said Nabi. In some cases, Nabi said, he had heard that creditors and debtors had wasted a lot of time without making any progress in their talks because they could not agree on the appointment of an auditor.
However, both Nabi and Stiglitz said what they would like to see was out-of-court debt restructuring among debtors and creditors, so that the issue can be quickly put behind them rather than having to go through protracted bankruptcy and foreclosure procedures.
The lack of genuine progress in corporate debt restructuring and the uncertainty surrounding the persistently high level, at 47 per cent, of non-performing loans (NPLs) in the banking system have dampened the sentiment on Thailand, raising fears that it might face another hiccup or some bumpy roads ahead.
Bullish sentiment in the stock market, built up in April and culminating with the successful global offering of the Siam Commercial Bank, has now almost vanished, with the Stock Exchange of Thailand index shedding almost 100 points under heavy selling pressure from foreign investors.
''Mostly we have not seen genuine restructuring going on, only cosmetic restructuring,'' said Dr Kongkiat Opaswongkarn, the president of Asset Plus Securities Co.
By cosmetic restructuring, Kongkiat means that most banks have only rescheduled NPLs with their debtors, rather than taking a hit or tackling them once and for all. ''If the debts are rescheduled, over the next two or three months they will surface again,'' he said.
Thai Farmers Bank appears to be the only Thai bank that is seriously tackling its NPLs, yet it is still at an early stage. The rest have been reluctant to move ahead for fear of eroding their already weak capital base. The progress of debt restructuring at government-controlled banks, which now control more than 60 per cent of the market share, is invisible because its executives, acting like civil servants, do not dare to make any decisions.
An investment banker at a top securities firm said his company would not accept any advisory debt restructuring deals for companies whose creditors are the Krung Thai Bank and BankThai. ''It's just a waste of time. Those two banks are notorious because they are not going to do anything,'' the investment banker said.
While Bangkok Bank will restructure debts with its customers only if it does not have to take a haircut, which is an impossibility, Siam Commercial Bank's move to set aside 100 per cent provisions for its bad debts has also raised doubts. The bank is said to have provisioned 100 per cent for only 10 per cent of its 37 per cent NPLs -- a figure many analysts said should in any case have been higher -- announced at the end of 1998.
Krung Thai Bank, which is awaiting a government injection of fresh capital to the tune of Bt108 billion, has yet to deal with its bad debts head-on, because the Finance Ministry is unable to answer to the public why the bank has not faced a capital write-down to clean up parts of its bad debts.
BY THANONG KHANTHONG