BOT agrees to give Bt130-bn for FIDF debts

May 24, 2000

THE Bank of Thailand has agreed to transfer some Bt130 billion in excess reserves set to be gained from an impending merger of different account books to help finance liabilities of the Financial Institution Development Fund (FIDF).

This followed tedious negotiations between Finance Minister Tarrin Nimmanahaeminda and central bank governor MR Chatu Mongol Sonakul, who have been at loggerheads over how to finance the FIDF's Bt1-trillion debt. Their conflict, at times marred by political overtones, has flared up in recent times to undermine confidence in the Thai financial system.

On Monday, Tarrin told a group of local newspaper editors the Finance Ministry and the central bank had reached a compromise, with both sides agreeing that about Bt130 billion should be handed over to the FIDF to reduce the rising fiscal burden of the government. A public hearing will be held today at the Emerald Hotel to debate this contentious issue.

This figure is derived at by a complicated formula. As of December 1999, the central bank was sitting on currency reserves, kept in three different accounts, of US$29.8 billion in US dollars and Bt75 billion in Thai baht. In total, the figure amounted to Bt1.2 trillion.

By law, the central bank is required to maintain foreign exchange reserves to back the baht in circulation. Since at present there is about Bt400 billion in notes and coins in circulation, the central bank will be requiring about $10 billion, about one-third of the foreign exchange reserves available, for back-up purpose.

But for prudent practice, Chatu Mongol is putting up a big argument over the need to raise the amount of foreign exchange reserves back-up to enhance the credibility of the Thai currency. He wants 200 per cent foreign exchange reserves back-up for the baht.

In this initial stage, however, the central bank will settle for 140 per cent reserves back-up, meaning it will need Bt600 billion from the Bt1.2 trillion foreign exchange reserves in baht terms.

This leaves Bt600 billion in excess reserves from this account consideration. Of this amount, Chatu Mongol would like to use Bt110 billion to clean up the book losses of the central bank's banking department, which lost money from its baht defence in 1997. Over the past three years the central bank has stopped handing over its annual profits to the Finance Ministry because it needs the money to write off the book losses of the banking department. The banking department lost about Bt380 billion defending the baht.

Moreover, Chatu Mongol would like to get hold of another Bt360 billion to strengthen the central bank's capital-to-assets ratio.

After deducting Bt110 billion and Bt360 billion from Bt600 billion, Bt130 billion will be left for the ministry to pay off FIDF debts.

As of December 1999, the FIDF, which built up liabilities massively through a bailout of the financial system, had piled up debts by Bt777 billion. This figure did not include Bt500 billion in compensation it already received from the government's bond issue.

Dr Pisit Lee-artham, the deputy finance minister, said it was difficult to determine the actual debts or obligation of the FIDF since it would depend on the proceeds of selling the intervened banks and asset recovery rate.

BY VATCHARA CHAROONSANTIKUL and

THANONG KHANTHONG