Baht defence probe going overboard

Thanong Khanthong and Vatchara Charoonsantikul question the merit of a witch-hunt operation against those who were involved in the baht defence.

The quest for truth regarding the 1997 baht defence has gone overboard. It is now approaching the stage of legal prosecution against those who were at the centre of command during the time when the baht came under a fierce attack. This presently looks more like an anti-climax than a thrilling end. For it raises a very disturbing question over whether the country should once again confront the ghosts of its past. Or should it rather undergo a process of healing.

Last week a 400-page report of a panel was leaked. It investigated the possibility of prosecuting those who might have been responsible for the depletion of the country's US$30-billion in foreign exchange reserves. The panel has also widened its investigation to cover those who might have improperly bankrolled the ailing finance companies and those who might have gone beyond the legal boundaries to rescue the Bangkok Bank of Commerce.

The collapse of the baht, the Bt1.2-trillion bailout of financial institutions and the downfall of the rogue Bangkok Bank of Commerce lay at the heart of the Thai crisis. The cast of characters, who were involved in these events, looked almost like a replay of a Shakespearean tragedy. Good or bad, they were equally condemned with the guilt of their ignorance and inaction, malice and sin.

After the Thai crisis broke out in 1997, there was pressure on the Chuan government, which came to power in November that same year, to come forth with the truth behind the fall from grace of the Thai miracle. How in the world did the Thais, who used to stuff their pockets with cash, wear Rolex watches and ride Mercedes cars, become so poor so suddenly?

Nukul Prachuabmoh, a highly respected former Bank of Thailand governor, was invited to head a commission to investigate the crisis and produce a full report so that the Thai public could learn what actually was going on. The Nukul Commission Report turned out to be an excellent manual of what central bankers should not do.

Held directly responsible for their collective mismanagement of the foreign exchange regime were Dr Amnuay Viravan, the former finance minister, Rerngchai Marakanond, the former governor of the central bank, Dr Chaiyawat Wibulswasdi, also the former governor, Dr Siri Garnjaroendee, the former assistant governor, Bandid Nijthaworn, the former director of the Banking Department. Their delay and indecisiveness in altering the foreign exchange regime led to the loss of reserves accumulated over a period of more than 30 years.

But the Nukul report, which was made public in 1998, stopped short of suggesting any legal action against these top policy-makers.

Vijit Supinit, a former central bank governor, and Jaroong Nookwun, the assistant governor, were also blamed for their share in the Bangkok Bank of Commerce scandal.

The Nukul report served largely as a social punishment against these characters, who had also lost their jobs and honour. But the matter did not stop there. The Chuan government moved further on to the legal course hoping to bring those involved in the Thai crisis to justice. At the same time, legal prosecution ensued against the financiers and bankers, who were found to have misused the money of their financial institutions. The lengthy process is still dragging on to this day.

Politically speaking, the government has had to come forward on two fundamental questions. First, how and why did the crisis take place? Second, with the loss of US$30 billion in reserves and the damage of Bt1.2 trillion in the bailout cost of the financial institutions, who should be held responsible?

The first question was properly handled by the Nukul Commission Report. As for the second and more difficult question, a panel was formed to look into the possibility of prosecuting the former regulators of the Thai financial system. Pichet Phunvichartkul, the deputy finance minister, oversees this panel.

For all the charges of political motivation behind the task of this panel, it finally produced its full findings last week. The report did not find any criminal violations on the part of the former policy-makers in the baht defence. But it did suggest that Amnuay, Rerngchai and Chaiyawat be prosecuted under the civil codes for their failure to discharge their duties.

The report based its findings heavily on the Nukul Commission Report. The difference was that it went further to probe whether any actions or inactions during the baht defence were in violation of the law. Amnuay, Rerngchai and Chaiyawat were found by the panel report to have violated the civil codes, which govern their duty in office.

But the panel report was purely an exercise of opinion. Its findings will be presented to the Cabinet next month for acknowledgement. Then it will be up to the government whether to pursue the legal course against Amnuay, Rerngchai and Chaiyawat.

If the legal course is taken, the case will be unprecedented and its ramifications will be quite damaging. For it will discourage officials in high offices from taking any tough decisions in the future, particularly during the time of crisis. They all will instead turn to the manual of the civil service and refrain from taking any hard decisions to protect themselves from future litigation.

It is quite clear that Amnuay, Rerngchai and Chaiyawat did not commit any criminal wrongdoings. Their mistake was that they could not fathom the consequences of changing the fixed exchange regime at a time when private sector debts amounted to $70 billion. If they devalued the baht, the banking system would have become insolvent due to the huge foreign currency exposure and due to the bankruptcies of its clients.

So it was a damned-if-you-do and damned-if-you-don't kind of a dilemma facing the top Thai policy-makers at the time. They could neither have thought of using the Mahathir tactic of declaring the offshore baht inconvertible to put an end to the currency attack.

Subsequently, the central bank lost all of its reserves from the heavy capital outflow and the baht attack. By the way, any action during the early part of 1997 would have been too late to prevent the financial bubbles from going bust.

In this respect, Amnuay, Rerngchai and Chaiyawat should be spared from the sin of their ignorance. They were good men; they were simply not suitable for the tough job of the time.