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Rejecting bills could stall reform


Thanong Khangthong looks at the crucial battle over the bankruptcy and foreclosure bills in the Senate, which will shape the course of Thailand's economic reform.


THE US Senate trial of President Bill Clinton and the Thai Senate deliberation on the bankruptcy and foreclosure bills draw a striking parallel of equal historical proportions.

If the US Senate fails to stick to ''impartial justice'' in its impeachment trial of Clinton, the politically driven move will certainly cast a long shadow over the independence of the presidency. If the Thai Senate fails to pass the bankruptcy and foreclosure bills, crucial to unlocking the outstanding non-performing loans of Bt2.7 trillion in the banking system, a debt overhang will prolong to eventually stall any economic reform efforts.

But unlike the confrontation in the US, which is politically testing the check-and-balance system of the White House, Congress and the Supreme Court, the bitter divide in Thailand between the Chuan government and the Senate over economic reform carries a critically higher stake of national survival. The final outcome will either enhance the prospects of recovery or further fuel the recession in the country, which is still struggling to keep its head above water.

The Senate has become the last bastion of Thai tycoons and corporate owners to save their remaining wealth since the financial crisis in 1997 and 1998 has driven them to the verge of bankruptcy. A study conducted by Dr Pisit Lee-artham, the deputy finance minister, in April 1998, found that in 1997 alone losses in the financial and equity markets of Thailand amounted to Bt5 trillion, which was equal to the gross domestic production in 1998. With the economy contracting by 8 per cent in 1998, financial losses multiplied.

The losses will continue at a brisk pace in 1999. Big-time families from the Sophonpanichs, who control Bangkok Bank, the Chearavanonts, who lead the Charoen Pokphand Group, and the Kanjanapas, who run Bangkok Land, have been removed from the league table of Fortune's richest families in Asia. In the words of Chatri Sophonpanich, the chairman of Bangkok Bank, the rich Thais have all become ''tycoons of yesterday''.

It remains to be seen whether US senators will vote with their consciences in the impeachment trial of Clinton, but dissent is already emerging in the Thai Senate over the economic reform bills. An alliance between the tycoons, business owners, conservatives and pensioners has been tightly formed to protect Thai ownership and deter laws that will speed up both corporate and personal bankruptcy from seeing the light.

Finance Minister Tarrin Nimmanahaeminda is presiding over a radical economic reform that will end crony capital in Thailand for good. His reform programme, blessed by the International Monetary Fund, is aimed at salvaging the wrecked economy, but the tycoons, family banks and corporate owners will be paying a penalty. From the high-interest-rate policy in the initial stabilisation period, the liquidation of Thai assets, the nationalisation of the banking system and a threat of further write-down of capital under the Aug 14 Bank Restructuring Programme to the speed-up of the corporate and personal bankruptcy process, these measures are highly unpopular at a time when the Bangkok establishment has already witnessed a meltdown of its assets.

If the Tarrin reform succeeds, Thailand will be saved, and working Thais will continue to keep their jobs. It is Tarrin's battle to keep the middle class strong, for Thailand is not a rich country like Japan which can afford to prop up its banking system and stock market.

Tarrin believes that if Thailand recovers it will be a stronger nation, with better governance and competitiveness. Yet at this point Tarrin's measures for tackling the economy have not proved successful. Banks, except the Thai Farmers Bank, are still struggling with inadequate capital. Assets of the 56 defunct finance companies cannot be liquidated at acceptable market prices. Exports are falling behind target. Unemployment is rising. Corporate debt-restructuring is not moving. The economy may not grow this year. This gives Tarrin's opponents ample ammunition to launch a counter-attack in the upcoming no-confidence debate.

Since the lower House, with the unpopular New Aspiration Party isolated on the opposition bench, cannot be relied on to combat the Tarrin reform agenda, elements of the vested-interest group have strengthened their hold in the Senate, where they have got a sympathetic hearing. Tarrin's failure to convince others that his reform will work for economic recovery this year has led the Senate to caution against passing the 11 economic reform bills, for if the country continues to face economic crisis there is no sense in piling further pain on the people.

Dr Virabongsa Ramangkura, a former finance minister, has come out openly to challenge the course Tarrin has been implementing along IMF guidelines. The IMF itself has been sharply criticised over its failure to stem the financial crisis in Asia. The heart of the IMF reform programme lies in a clean-up of the Thai system, a destruction of crony capitalism, to pave the way for the return of foreign capital, but Virabongsa has questioned whether this remedy works: if foreign capital does not come back for three or five years, what is the point of adopting painful reforms or tough international standards when Thais are drowning?

A polarisation in economic management policy is expected to intensify this year to culminate in a vote on the 11 economic reform bills before March. Although Virabongsa claims no association with any political party, he commands a group of followers who despise the Democrats and do not share the IMF's views. The Senate has become the staunchest anti-IMF fortress. Reform or no reform, the Senate will be a bitter battleground that will critically determine the course of Thailand's economic-recovery prospects, and there will be more pain to come.



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