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Amnuay contradicts Rerngchai

 

FORMER finance minister Amnuay Viravan yesterday contradicted former Bank of Thailand governor Rerngchai Marakanond's statement that he had kept Amnuay fully abreast of the problems in the finance sector and with the attack on the baht in the turbulent first half of 1997.

Amnuay said no official reports had ever been submitted to him on how much money the Financial Institution Development Fund (FIDF) had spent to keep finance companies afloat, nor had he been officially informed about the foreign exchange reserves position following the baht's defence.

Under bureaucratic procedure, any reports to the finance minister must be clearly documented in writing or they had no significance, Amnuay said.

His comments suggest that in its supervision of the financial system, the central bank is empowered to guard stability without having to consult the finance minister.

''Although by law I was the ultimate supervisor of the financial system, I was not informed at all about how much money the Fund spent that week or that month,'' Amnuay said. ''You can check the evidence.

''So to comments as to why I did not put a brake on the Fund's activity, I would say that I did not prevent it from doing so because I had been assured that any lendings were backed up by twice the amount in collateral.

''Any lendings by the Fund without collateral would certainly lie beyond my knowledge.''

He said that every time he asked Rerngchai about the problems of the finance firms, the former governor assured him that things were under control.

Rerngchai said in an interview reported by Matichon newspaper that he had kept Amnuay fully informed and consulted him and his central bank colleagues on every step in the supervision of the financial institutions and in the defence of the baht.

If there had been any attempts to stop the Fund's activity or to revise the disastrous baht defence policy, he would have readily concurred, Rerngchai said.

Amnuay and Rerngchai have now both come out to defend their role in the run-up to the financial crisis, which eventually wreaked havoc with the economy.

The Chuan administration is deliberating the Fund's Bt1.1 trillion bailout of the failed financial system and the possible loss of half of this amount -- which would have to be compensated for with taxpayers' money.

It will also shortly settle the score with the central bank over its squandering of US$30 billion in foreign exchange reserves, which effectively turned Thailand into a bankrupt nation.

When Amnuay left office on June 18, the Fund had spent almost Bt200 billion to support the finance companies. Six months later the amount had jumped more than fivefold to Bt1.1 trillion.

''When I asked the governor about this amount, because Bt200 billion was already a lot of money, I was told that there would no problem because the Fund would not lend out money without collateral support,'' Amnuay said.

''But later, I presume, the damage could not be controlled, following the introduction of an executive decree that allowed the Fund to lend money without collateral.

''I think this was the turning point,''.

On the baht defence, Amnuay again denied having any intimate knowledge of the central bank's foreign exchange operation. Despite ongoing consultations, Amnuay said he had never been briefed on the sensitive figures of the central bank's foreign exchange reserves, which should have been significantly depleted by selling dollars to defend the baht.

At one point he asked Rerngchai why the reserves figure had not fallen significantly, despite the costly baht defence. Rerngchai had replied that the central bank had managed that by doing swaps.

In fact, Thailand's foreign exchange reserves of US$34 billion to $35 billion in did not fall significantly because the central bank cooked its books to make it appear that it still had its hands on the reserves, although the reserves had been spent in the futures market to defend the baht.

The central bank fiercely defended the baht because it feared that Thai corporates, which were saddled with $70 billion in foreign debts, would have been plunged into bankruptcies had the baht been devalued.

It was not until May 28, 1997, that Rerngchai submitted to Amnuay an official report indicating that between May 10 and 15 the bank had piled up $17 billion in foreign exchange swap contracts and sent out an alarm note that it would have no choice but to devalue the baht. But the baht float, or a de facto devaluation, would have to be delayed until July 2 to help Thai corporates complete their financial books in the first half without too much problems.

After Thailand sought a US$17.2 billion bailout package from the International Monetary Fund in August, it was forced to disclose the swap positions, which turned out to be a shocking $23.4 billion in outstanding.

Before that, however, the central bank had already wasted $7 billion in the defence, bringing the total cost of the baht defence to a staggering $30 billion.

There were two versions of the report that Amnuay received on May 28.

One simply outlined the scope of the foreign exchange management, without going into the details for fear that it would be leaked and cause further damage to Thailand's baht policy.

The other went on to detail the highly confidential reserves position.

Amnuay received the first version and any details left out were followed up by Rerngchai in his verbal report.

By Vatchara Charoonsantiku and Thanong Khanthong

 

 

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