Thirayuth's bombshell puts coalition on the defensive
PARLIAMENT'S conscience will today be put to the test when it is scheduled to vote on the four financial decrees aimed at easing the country's crippling financial and economic crisis. Finance Minister Tarrin Nimmanahaeminda warned yesterday that passage of the decrees is a matter of ''life or death''.
The first decree is designed to lift the ceiling of external debt creation by the Finance Ministry, which aims to issue global bonds amounting to US$5 billion over the next 30 months. Fresh foreign capital is needed to give the cash-strapped Thai financial system a boost, paving the way for interest rates to fall.
On the first day of the two-day parliamentary debate, Korn Dabaransi of the Chat Pattana Party questioned the administration as to how it would utilise this money, which he feared would not be subject to scrutiny by Parliament. But Tarrin clarified that proceeds from the global bond issue would be used mainly to recapitalise the state-controlled banks such as the Government Housing Bank, the Bank for Agriculture and Agricultural Cooperatives or the Export and Import Bank of Thailand.
If these financial institutions are adequately capitalised, they will be in a position to extend credit to important sectors of the Thai economy.
Equally important is the second decree, which will allow the Finance Ministry to take over the Financial Institution Development Fund from the Bank of Thailand and lift it out of the short-term money market. Attached to this decree is a provision that will allow the FIDF to issue long-term bonds totalling Bt500 billion to keep the financial system alive.
Again, Korn tried to rock the boat by asking whether the government was trying to create an additional burden for the Thai people, who had already paid a dear price during this economic crisis.
Several social critics, particularly Thirayuth Boonmee, the Thammasat University academic, have attacked the decrees fiercely, arguing that they represent the government's attempt to ''solve the problem of the rich by pushing the burden to the poor''.
Thirayuth has urged Parliament to vote down the decrees unless the rich are punished with higher taxes in a more equitable sharing of the pain.
Tarrin almost could not withhold his emotion since Tuesday when Thirayuth, dubbed by one of his critics as ''the man who speaks once a year'', began to launch his attack against the Democrat-led government at a time when it most needed the political consensus to bring the country out of the quagmire.
Thirayuth, who calculated the timing of his criticism very carefully to have the biggest impact and exposure, warned that social turmoils could erupt in August or September if the government fails to address the social problem. His assessment, backed by his lofty goal of pushing ''governance'' as the cornerstone of a reborn Thailand, coincides with a forecast in the IMF-designed third letter of intent that the sliding Thai economy was expected to bottom out in the third quarter of this year.
Tarrin went to great lengths to clarify the need to clean up the financial mess created by the FIDF. It is not a problem of the rich or the poor, but it is a problem of the country. At present, the FIDF is a giant monster in the financial system, for it sucks away most of the liquidity and passes it on to the solvent or insolvent financial institutions.
According to Tarrin, the FIDF, as of March 31, 1998, piled up its bailout burden to Bt851 billion, of which Bt372 billion came from direct and indirect borrowings from the Bank of Thailand and the remaining Bt479 billion from the short-term commercial money market.
With the country in deep economic recession, the commercial banks have stopped normal commercial lending but elected to lend to the FIDF instead, which is risk-free and is offering attractive interest yield. Tarrin admitted that the carrying over cost, or interest burden, of the FIDF is reaching an average 20 per cent, although interest rates in the repurchase market have fallen to 17.75 per cent.
The finance minister warned that if the problem of the FIDF is not directly addressed, it will double its size every four years and three months to create financial burden to the next generations.
The FIDF is a legacy of the past policy mistake, which pumped money into the financial institutions without discriminating whether they were solvent or insolvent. The guiding philosophy at the time, incidentally during the administration of Gen Chavalit Yongchaiyudh, was that banks or finance companies were too big to fail.
The authorities have assessed that the FIDF is likely to end up losing Bt500 billion from its bailouts, so it needs to raise this equal amount in the long term to foot the bills.
''Since the FIDF is a government agency, its debt is government debt,'' Tarrin said. ''I admit that there will be a lot of discontent but it is necessary to solve the FIDF's problems.''
Ironically, Chavalit, who is now sitting on the other side of the aisle, indicated that the opposition would block the decrees which would solve the problems emanating from the policy errors and mismanagement of his and the past administrations.
The Nukul Commission, which has completed a remarkable study of what went wrong with the Thai economic miracle, holds Chavalit, Dr Amnuay Viravan, the former finance minister, and other former top Bank of Thailand officials directly accountable for the financial and economic meltdown.
''I can reassure you that the decrees are unacceptable to the opposition, and there are other ways to deal with the economic crisis,'' Chavalit said before the debate began. Chavalit did not provide the alternatives.
Phiset Phanvichartkul, the deputy finance minister, undertook to clarify the principles behind a need to pass the remaining two decrees, which cover regulatory amendments to make it legally possible for the FIDF to reclaim the debts owed to it by the financial institutions and which will empower the Asset Management Corporation, dubbed the ''bad bank'', to raise money from the public or debts from the capital market it deems appropriate.
Passage of the four decrees only mark one of the series of difficult steps Thailand needs to undertake in order to restore confidence in the Thai economy and restore the country's credit standing in the international community. If the decrees are voted down in Parliament today, the Chuan administration will have to resign, creating a stalemate to all the measures that have been laid out to bring the Thai economy back on track.
BY THANONG KHANTHONG