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Country paying high price for lack of proper infrastructure

 

Thailand has failed to cope with the economic crisis because it does not have the appropriate infrastructure and has not employed the correct policies, says Thanong Khanthong.

Peregrine Investment Holdings Ltd, one of Asia's largest independent investment banks, went down the tube in a matter of days.

It was so fast, so unreal. Why? It's simply because Peregrine could not dip its naughty hand into the pockets of the Hong Kong authorities. It had to find a way out on its own.

When it emerged that it could not muster fresh capital of US$200 million from Zurich Centre Investments, a unit of Zurich Group, Peregrine filed for liquidation on Monday. It finally paid the price for its arrogance and its aggressive high finance forays into the now-collapsed regional bond markets.

In Thailand, the banking regulators did virtually nothing even though they knew, as far back as 1995, that Bangkok Bank of Commerce (BBC) had cooked its books to conceal its negative net worth. Instead of closing it down, they set out to throw good money after bad, eventually pitching in Bt80 billion. They ended up solving nothing. This Bt80 billion will have to be written off.

Even though the regulators dreamed of Thailand becoming a regional financial centre, they never attempted to create the appropriate infrastructure to support the rapid pace of financial liberalisation.

Absent was a bankruptcy law to allow insolvent institutions to proceed with liquidations. The accounting system was so bad that the auditors informed the investing public of virtually nothing even though they knew the companies they audited were bankrupt. It took seven to 10 years to complete a bankruptcy case in court.

The supervision of the banking system was so ridiculous that at one point the regulators allowed Bangkok Metropolitan Bank to lend 60 per cent of its business to one single family group. Well, this was not the way to travel on the path of capitalism.

Even after the collapse of BBC and its costly bailout, they still adhered to the diehard notion that finance companies or banks were too big to fail. The lesson was never learnt. So, instead of allowing insolvent finance companies to go under and merging the rest at the same time, the Financial Institution and Development Fund went about acting like Santa Claus.

It gave away almost Bt40 billion to Finance One Plc, more than Bt20 billion to General Finance & Securities Plc and more than Bt10 billion to CMIC Finance & Securities Plc, even though it knew that it would never get the money back. Altogether, the fund injected Bt430 billion into the 58 troubled finance companies, 56 of which had to be shut down permanently anyway. Again, it did not solve any problems. Good assets quickly turned into bad assets.

Taking into account the entire financial system, the cost of the bailout now has exceeded Bt1 trillion, or about one-fifth of the country's gross domestic product. Still, nobody can see the light at the end of the tunnel.

In contrast, the Singaporean authorities have demonstrated their efficiency. Amid the regional currency turmoil, they ordered local banks Keppel Bank Ltd and Tat Lee Bank Ltd to merge, a pre-emptive move which will strengthen the new entity with a combined shareholder equity of S$3 billion. In Thailand, the authorities can hardly point a finger at any local banks, much less order them to merge. They don't have the clout to tell the family banks to recapitalise or merge. This has prolonged the crisis and created an unstable currency.

Thailand's foreign debt of $90 billion is equivalent to its gross domestic product. This means a full year of Thailand's combined goods and services output is required to pay these huge debts. In corporate accounting style, Thailand will have to amortise its debts and pay them off 10 per cent each year, which will take 10 years. The party is really over.

 

 

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