Guilt by lack of accountability
ROBERT Chote of the Financial Times, in the daily's Monday edition, quoted nobel prize winning economist Milton Friedman as observing that central bankers have two principal objectives: ''Avoiding accountability on the one hand and achieving public prestige on the other.''
Friedman's acute observation is a shocking reality to what is presently going on at the Bank of Thailand, where there is little accountability except a desperate attempt to guard prestige.
After listening to the testimonies of all the key individuals involved in the build-up of US$23.4 billion in foreign exchange swap contracts, a member of the Nukul committee tasked to probe the disaster, concluded: ''It could be traced to the three top central bankers [Vijit Supinit, Rerngchai Marakanond and Dr Chaiyawat Wibulswasdi], who acted like gods coming down to take office. We did not question their honesty, but they were like frogs in a bowl beyond which they could not see.''
This key committee member criticised the three top central bankers for failing in their duties as guardians of economic and financial stability because, as scholarship students, they achieved career advancement within the narrow culture of the central bank without having to get in touch with the outside world.
The Bangkok Bank of Commerce scandal exploded during Vijit's tenure, as did the formation of the economic bubble through massive capital inflow in the early part of this decade. Rerngchai could not handle the collapse of the financial institutions and proved indecisive in the face of capital outflows that put pressure on the baht until the currency peg system broke apart.
Chaiyawat was a member of the inner circle of Rerngchai, who played a part -- despite his pledge of innocence -- in building up $23.4 billion in foreign exchange swap contracts that eventually broke the back of the Bank of Thailand.
The Nukul committee is tasked with probing whether it is the individuals or the system, or both, that led to the crumbling of the central bank's management of the macro-economic policy and financial system. In his opinion, the committee member said, there is nothing wrong with the system, which has worked well over the past 50 years; the problem has more to do with the individuals concerned.
A former BOT official said the system of the central bank rests on the enormous power and leadership of the governor, who cannot fail. But over a period of time, it has developed into a moral hazard as the governor sought to rely on the assistance of the number three or number four official, intentionally avoiding any dealings with the number two through fear that his governorship would be undermined.
Instead of nurturing a merit system, the central bank embraced a system of seniority, similar to other bureaucratic agencies. After Vijit's departure, the central bank named Rerngchai as his successor despite the fact that Chaiyawat and Ekamol Khiriwat (the former secretary-general of the Securities and Exchange Commission) were more qualified.
The system was simply entrusted to the wrong man with the wrong job at the wrong time.
Adding to the central bank woes was the lack of political credibility in the Banharn and Chavalit administrations, which had done much to erode confidence, the committee member said. To be fair to the central bank, the two administrations' flip-flop polices made it tougher for it to steer the country out of the economic trouble.
With public anger rising over a Bt1 trillion bail-out of financial institutions by the Financial Institution Development Fund and a squandering of $23.4 billion in foreign exchange reserves through the swap contracts, the Chuan administration is obliged to make these two critical matters transparent. The key question is, who should be accountable for the damage that led to a complete loss of confidence in the Thai economy.
As it turns out, no evidence has yet emerged of any accountability as top policy-makers point their fingers at someone else. Rerngchai has said in an interview that all the policies formulated or implemented under his leadership during the turbulent time received clearance from former finance minister Dr Amnuay Viravan and went through a collective decision-making process, with his colleagues and Chaiyawat also present.
On Feb 9, Amnuay insisted he had no knowledge of the central bank's disastrous build-up of $23.4 billion in foreign exchange forward contracts, saying he only once received a report from the BOT in May 1997 after the baht had come under fierce assault.
Testifying before the Nukul panel, Amnuay said if the Exchange Equalisation Fund, which was responsible for fixing the value of the baht against the US dollar on a daily basis, had been informed of the huge swap positions, he would have known about it as he was the chairman. ''The central bank is too independent. The central bank did [swap contracts] without the knowledge of the Finance Ministry, which only learnt about the matter after it was too late,'' he said.
Former prime minister Chavalit Yongchaiyudh was also reported to have blamed Amnuay for briefing him only after the finance companies had been closed and said that he had not been informed about the seriousness of the crisis. Chavalit personally admitted that he was not keen on economic affairs and had therefore transferred all power on the matter to Amnuay.
Chaiyawat has given several interviews denying any role in the foreign exchange swap contracts, although he was deputy governor at the time.
''It is impossible that Amnuay and Chavalit did not know what the central bank had been doing since they did not spend the money at one time and every time they reported to the political side,'' said Krirkkiat Pipatseritham, a member of the Nukul committee.
BY VATCHARA CHAROONSANTIKUL and THANONG KHANTHONG