The Bank of Thailand is to begin an in-house inquiry into its handling of the BBC scandal, Vatchara Charoonsantikul and Thanong Khanthong report.

Bank of Thailand governor Rerngchai Marakanond has promised he will launch a full in-house inquiry into the BOT's inept handling of the Bangkok Bank of Commerce scandal. Nevertheless, he hinted that the inquiry will not begin until after the BOT has concluded talks with the Industrial Finance Corporation of Thailand over the prospect of assuming management of the failed bank.

The inquiry will mark the start of a painful process for the central bank, which has finally shown a willingness to come to terms with its haunting past.

Rerngchai is aware that if he does not attend to the issue which has done so much damage to the BOT's reputation, someone else will. The Opposition, led by the Democrat Party, has threatened to launch a House inquiry into the BBC scandal.

How can a bail-out of BBC with Bt90 billion in public funds go ahead with such a poor explanation of the details, particularly when unsubstantiated reports have dogged former finance minister Tarrin Nimmanahaeminda over his failure to tackle the BBC problem before the bank went broke?

Tarrin, who is conscious of his public image and aspires to a high place in Thai politics, cannot afford to allow the BBC scandal to stick to his reputation. He has brought the publisher and editor of Dok Bia to court on a libel charge, a process through which the truth behind the collapse of the BBC could be exposed.

In a normal situation, it would be impossible to release to the public confidential documents concerning the BBC scandal. But these documents, from the BOT and the Finance Ministry, may be presented as evidence to the presiding judges in a court room. After that, the documents would no longer be confidential.

It is wise on the part of Rerngchai to have taken the unpopular step to clean up the BOT's house. By doing so, he may succeed in preventing the Democrats from launching a House inquiry, which would only add salt to the central bank's wounds.

The fallout from the process could only do more damage to the BOT at a time when it needs to restore confidence as quickly as possible and move on to the more important task of laying down a stronger framework for Thailand's macroeconomic stability.

Rerngchai had been frozen out by his predecessor, Vijit Supinit, being confined for six years to running the obscure note printing house. He was not even the first choice for the BOT governorship when Vijit was sacked from office in July last year. Dr Olarn Chaipravat, president of the Siam Commercial Bank, was the top candidate, but he could not turn down a request from the senior SCB people to stay on.

Almost before he could take a deep breath, Rerngchai was plunged into crisis after crisis, from the economic crash-landing, the financial meltdown and the currency war to the BBC scandal.

Yet, as governor, he must act to restore the integrity of the BOT, which used to be held as one of Thailand's finest institutions.

One of the big questions remaining is who will head the panel inquiry into the BBC scandal?

The panel must be truly independent in its pursuit of the truth behind the BOT's supervision of the rogue BBC, which got into deep trouble during Vijit's tenure at the central bank.

Whatever the verdict, the outcome of the report must be made public.

To be fair to the central bank, the institution is really a gathering of top-notched technocrats. Of its 5,185 employees, 180 work in the Supervision and Development of Financial Institutions Department, 40 in legal affairs, 285 in the examinations of commercial banks department and 200 in the examinations of finance companies department.

A person familiar with the BOT said he believes in the integrity of its examination and of the legal officials who handled the BBC case. ''The problem was that when their BBC reports were submitted to their superiors, no action was taken," he said.

Phenwan Thongdithae, the BOT's top examiner and assistant governor, called on Vijit to take action against BBC management. Vijit replied to Phenwan's recommendations by reassigning him to a dead-end post under Dr Chaiyawas Wibulswasidi, then an assistant governor as well.

The reassignment marked the first time in the history of the BOT that a senior assistant governor was placed under another assistant governor.

Honest as he is, Jaroong Nookwun, the current deputy governor, must have been aware of the rot at BBC. He worked closely with Vijit and read every report. Yet he could not bring his mind to warning the governor of the danger of letting BBC continue to play. Jaroong was simply a passive onlooker as the BBC collapsed at his feet.

According to BOT reports made public last May by Suthep Thuagsuban, the Democrat MP from Surat Thani, BOT officials must have detected the scam inside BBC as early as 1992, when its bad loans soared to Bt11.11 billion.

Despite warnings from the BOT, the Krirk-kiat Jalichandra-led management continued to flout banking regulations by lending money out to their own group and other high-risk borrowers.

By the end of 1995, the BBC's bad debts had skyrocketed to almost Bt80 billion.

Instead of taking drastic action against BBC's management, Vijit sought to bail the bank out with money from the Fund for Rehabilitation and Development of the Financial Institutes and the Government Savings Bank (GSB).

The GSB, under the chairmanship of Nibhat Bhookanasut, approved a deal to buy a 3.125 per cent stake of BBC using more than Bt400 million in children's deposits. This ill-advised investment ended up going down the drain.

To this point, about Bt60 billion has been injected into BBC ­ but Bt30 billion more is needed just to keep BBC on its feet.

Asked by Surakiart Sathirathai, the finance minister at the time to provide him with the details of the BBC affair due to its political implications, Vijit duly submitted confidential reports.

A summary by Surachai Phruekbamrung, director of the Supervision and Examination of the Commercial Bank Department, over the alleged defrauding of the bank by Krirkiat, Ekachai Athikomnantha and Rakesh Saxena. The letter, dated Jan 23, 1996, was submitted to Jaroong.

Yet it was not until June of last year that Vijit was forced to file a suit against the BBC's executives for violating the banking law. However, Vijit had no intention of bringing Krirk-kiat and his cohorts to justice in the first place, which explains the delay.

When the case was forwarded to the Economic Crime Investigation Division, it was handled sloppily. Neither BOT officials nor the police knew for sure the exact date when the one-year statutory period of the case would expire, either because they did not talk to each other or because they, knowingly or unknowingly, did not want to follow up on the case.

When Rerngchai learned that the Attorney-General had decided to drop the case against the three suspects in the BBC scandal, he was shocked. By this time, BBC had become a full-blown political scandal, which gave Interior Minister Snoh Thienthong and Chalerm Yoobamrung, his Rambo-style deputy, the ammunition they needed to settle old scores with Khanit Na Nakhon, the attorney general.

Only after Khanit put up a strong fight by arguing that the statutory period should have started with the BOT's Jan 19 letter ­ not Feb 12 when the BOT informed the BBC executives they were under investigation ­ did he escape Snoh and Chalerm's vendetta.

By this point, Prime Minister Chavalit Yongchaiyudh and Finance Minister Amnuay Viravan had no choice but to look into the matter ­ as much as they preferred to distance themselves.

A special panel, headed by Ackaratorn Chalarat, secretary general of the Office of the Council of State, was quickly formed to determine the flaws in the due process of law, which failed to bring the most notorious case of fraud in the country's history to trial.

The best the panel could do was offer the lame excuse that a ''technical mistake" had been made.

It is clear that the Bank of Thailand, after failing to adequately supervise BBC, cannot afford to let a ''technical mistake" further tarnish its reputation. Hence Rerngchai's promise to launch an internal inquiry into the BOT's handling of the BBC scandal.