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Finance bailout could cost Bt300 bn

 

DEMOCRAT MP Supachai Panitchpakdi says a bailout of the 58 suspended finance companies will cost taxpayers about Bt300 billion.

Speaking at a conference yesterday on the International Monetary Fund programme and the Thai economy organised by Chulalongkorn University's MBA and Executive Club, the former deputy prime minister said if the government mishandles the clean-up of the mess caused by the 58 finance companies, it will not only lead to a staggering bill for the taxpayers but also to a collapse in asset prices.

''If we don't get individuals of unquestionable integrity to run the Financial Restructuring Authority [FRA], which will look after the assets of the 58 finance companies, I am afraid that the hectic pace to write off the bad assets will lead to mismanagement. The assets of the finance companies might be forced down from 100 per cent to 10 per cent and sold to cronies or friends of the people in power," Supachai said.

An economic programme prescribed for Thailand by the IMF in return for a stand-by credit worth US$17 billion goes hand in hand with a comprehensive package to tackle the ailing financial system, whose non-performing loans could top Bt1.3 trillion according to one estimate. The Cabinet has already passed six executive decrees which provide a legal framework to clean up the financial system.

However, the coalition government has watered down the framework of the FRA and the Asset Management Corporation, the so-called ''bad bank", which won't enjoy independent status but will be subject to Cabinet scrutiny.

The combined assets of the 58 finance companies stands at about Bt1.1 trillion, half of which is believed by Supachai to be non-performing. The non-performing assets of roughly Bt500 billion could be sold out at an 80 per cent discount with the remaining good assets of Bt500 billion sold at a 20 per cent discount.

Supachai suggested that based on this assumption, the remaining good assets of Bt500 billion could be divided into three portions of more than Bt150 billion, so that each might be entitled to a bank licence and developed further into healthy financial institutions. The start-up equity for the three new banks will come from the Financial Institutions Development Fund, which has loaned Bt430 billion to support the liquidity of these 58 finance companies.

The fund could theoretically swap about Bt50 billion of this Bt430 billion into equity for the three new banks. The three new banks will then have more than Bt15 billion in equity for start up.

Supachai also did not agree with the idea of setting up the Asset Management Corp to manage the bad assets of the 58 finance companies. Since the FRA and the AMC will be entrusted to finish their clean-ups of the bad debts in the 58 finance companies in three months, a time-frame preferred by the IMF and the World Bank, the process might lead to mishandling.

He added that a committee of auditors, similar to the one set up to manage the bad assets of the lifeboat scheme in 1984, would be good enough to handle the transaction. At this point, discrepancies in the value of finance companies' assets are large, according to the results of the Bank of Thailand's audit and independently performed due diligence.

Ammar Siamwalla, a trustee of the Thailand Development Research Institute, called for the government leadership to be forthright about the size of the mess in the financial system, which he estimates might cost taxpayers about Bt200 billion.

''I would like to see the leadership of this country stand up and talk in a straightforward manner to the Thai people. They should say something like we have been enjoying the goodies for quite some time and it is now time to pay the price, which is going to be painful," Ammar said.

''They should spell out clearly that we'll suffer the pain of this certain degree and we'll bail out the financial system with this certain amount of money to repay all the old karma. I think if they said it with reason, without any deceptions, the public will accept it and confidence will return," he added.

However, the biggest task of the government is to save the remaining 33 finance companies and 15 commercial banks from going under. There is no guarantee that damage will not befall the remaining financial institutions if the government fails to restore confidence in the months ahead, Ammar said.

However, the central bank yesterday said confidence in the 33 finance companies has improved, as evidenced by an Bt8.6 billion increase in their combined deposits between Oct 16 and 22. Before the announcement of the comprehensive financial restructuring package on Oct 14, the finance companies were witnessing outflows of Bt1.5 billion to Bt1.6 billion a day.

Viroj Phutrakul, former chairman of Lever Brothers Thailand and now a businessman, said there is a big opportunity out there for investors who still have money to restructure failed businesses through takeovers or buy-outs. The crisis can be turned into opportunity, he added.

At this point, he suggested, businesses should rally to restore the morale of their clients and employees, concentrate on reducing costs or managing costs with efficiency and restore faith in the credit system.

''I've heard from my business friends that now is not the time to depend on the government. If the government can lend you any help, then that is a plus. However, we should help ourselves. We should try to turn the problems into opportunity. Like the saying goes, no pain, no gain," Viroj said.

 

BY THANONG KHANTHONG and SASITHORN ONGDEE

 

 

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