Pin blames system for his downfall

March 11, 2001

"HE who lives by the sword dies by the sword." This old epithet rings so true in the case of Pin Chakkphak, the one-time high-flying financier who has just lost the first round of his extradition battle.

Yet Pin refuses to go down with his sword.

Had he not led a dual-citizenship existence, ascended to the super-rich heights, and emerged as the consummate protagonist of the financial bubble, Pin probably would not have come into the sights of the authorities in their hunt for a scapegoat for the financial crisis.

Each person has his own destiny. Pin can never have thought that he would some day be knocked off the financial pinnacle, with more than Bt100 billion of assets amassed during the decade of greed and ignorance in the 90s. From reigning as the most powerful financier in Thailand to holing up as a fugitive in London, what a spectacular downfall! Who is really at fault here, the man or the system?

Pin took the opportunity to defend his integrity in an interview with Suthichai Yoon on Nation Channel on Friday. He laid all the blame for his predicament on the "system". The Thai authorities failed to send a proper signal about the economic downturn in 1996. They discouraged mergers and acquisitions among financial institutions. They closed down his Finance One Plc and forced him and his financial empire into complete ruin.

When something goes amiss, it is very convenient to blame the system. But this does not mean that the Thai financial system itself was free of any structural problems during the years leading to the 1997 financial crisis. Far from it, the system was fatally flawed. Premature financial liberalisation, lax banking supervision and the pegged exchange-rate regime encouraging capital inflow - all contributed to the ensuing financial bubble. Yet the shrewd players in the financial markets during those years benefited immensely from this defective system.

Had it not been for the misdirected policies of the Bank of Thailand, which barred foreign participation in the local financial industry and promoted financial development at the expense of industrial and agricultural development, Pin and other financiers would not have enlarged their highly leveraged businesses through mergers and acquisitions. With borrowed money, most of which was supplied directly or indirectly through foreign-currency lending, Pin was able to leverage and multiply his assets. The foreign-currency financing also helped fuel the stock-market boom, creating a culture of paper money without any underlying productive assets. This was a prescription for disaster.

Most of Finance One's interests were concentrated in activities that were vulnerable to an economic downturn. But Pin said in the interview that the firm was financially sound with an adequate capital base: it went under only because it could not withstand the onslaught of a frantic deposit run.

Yet some reports in early 1997 suggested that Finance One's financial situation was less than stable: to stay afloat, it would need to tap the money market continually. Finance One indeed was a mirror of Thailand as a whole. Thailand ran a huge current-account deficit and depended on foreign capital injections to finance it. Since foreign investment did not go into productive areas - mostly into real estate and stock-market speculation - Thailand could survive only by borrowing more and more.

Somewhere along the line the tap would run dry. When it did in 1997, the country faced a full-blown financial crisis, a classic example of a balance-of-payments squeeze. Finance One and other over-leveraged financial institutions were all destined to collapse.

Now with the enormous damage to the financial system and a costly government bail-out that has sent public debt skyrocketing from literally nothing to Bt2.5 trillion, who could be blamed? It was politically impossible to let bygones be bygones. The public at large did not benefit from the boom but had to suffer from the aftermath. Pressure built up on the government to bring some financiers to justice or force them to pay for their financial shenanigans, so it took after an assortment of high-flying financiers in the hope that it could catch at least one.

Pin was caught in this web and subsequently became public enemy number one owing to his decision to fight tooth and nail against extradition to Thailand to face charges. Compared to Krirkkiat Jalichandra, former president of now defunct Bangkok Bank of Commerce, Pin's sins were petty, but the social sanction against him was more severe.

This brings the whole episode back to the irony of fate, particularly that of the man who once aimed to surpass Bangkok Bank and make his firm one of the foremost financial houses in Southeast Asia. Pin could have made it, if only . . .

BY THANONG KHANTHOG