World Bank says AMC is 'no magic solution'
February 17, 2001
WORLD Bank country director J Shivakumar expressed reservations yesterday
about the impending establishment of a national asset-management corporation (AMC),
saying it was not a "magic solution" to the economic malaise.
Instead, Shivakumar stressed that the incoming Thai Rak Thai government
should focus on the expedition of corporate debt restructuring by strengthening
the legal and judicial regime.
Shivakumar's comments mark the first time the World Bank has publicly stated
its views on the Thai Rak Thai Party's controversial proposal to form a national
AMC to further reduce problem loans in the banking system. Details of the
national AMC have yet to be worked out, but Thai Rak Thai has claimed that one
would help get the banking system back on its feet and encourage lending.
The World Bank, which has been advising the Thai government very closely over
the past three years of the economic crisis, believes the national AMC might not
be the best answer to the banking distress because most of the bad debts have
already been nationalised by the government.
About 65 per cent of the Bt2.7 trillion in bad debts, which peaked in the
middle of 1999, are now on the books of banks taken over by the state or
state-owned asset management companies.
Michael Markels, a World Bank senior financial sector specialist, suggested
it might be better for the government to focus on managing problem loans to
maximise returns.
He implied that if all bad debts in both private and government-controlled
banks were carved out and placed into one big pool they might be difficult to
manage.
The World Bank and the International Monetary Fund appear to share a similar
stance with the Chuan government on corporate debt-restructuring. Former Finance
Minister Tarrin Nimmanahaeminda preferred to let private banks tackle their own
bad debts by forming their own AMCs, while the government tried to provide
incentives or assist in the regulatory environment.
But the rate at which corporate debts are being restructured is far from
satisfactory due to weak bankruptcy and foreclosure procedures. The infamous
Thai Petrochemical Industry case has dragged on for the past three years - and
is still not resolved.
Tarrin has said corporate debt restructuring should be one of the top items
on the agenda for the next government, which should move further to strengthen
the judicial regime.
Ijaz Nabi, lead economist at the World Bank overseeing Thailand, said forming
a national AMC was not as important as tackling corporate debt restructuring, as
evidenced in the cases of South Korea and Malaysia. He pointed out that shortly
after the crisis, both South Korea and Malaysia set up national AMCs to remove
the bad debts from the banking system, yet there has been very little progress
in either country in corporate debt restructuring.
Corporate debt restructuring is seen as the key to economic recovery. In the
case of Thailand, the slow economic recovery can in part be traced to the debt
overhang, with Bt1.5 trillion to Bt1.8 trillion in bad debts locked up in the
banking system. If these bad debts could be released back to the secondary
market, they would stimulate business and economic activities, and help boost
investment and demand.
BY THANONG KHANTHONG
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