Tarrin finds road to recovery
Policy momentum has gathered pace with the government's tough decision yesterday to permanently close 56 out of the 58 suspended finance companies, although the worst is yet to come, reports Thanong Khanthong.
Tough decisions announced by the government yesterday have gained Thailand the policy momentum it needs to move forward.
Of the 58 finance companies suspended since mid-year, only two will be permitted to re-open while a ''good" and a ''bad" bank will be set up to deal with the Bt950 billion in assets stuck in the troubled financial sector.
Yesterday's announcement cleared the first crucial hurdle on the long road to restoring the confidence of the international community, although the impact will not be felt immediately.
Finance Minister Tarrin Nimmanahaeminda, on the recommendation of the Financial Sector Restructuring Authority (FRA), took the bold step of permanently closing 56 finance companies and giving Kiatnakin Finance & Securities Plc and Bangkok Investment Plc permission to re-open under tough conditions.
He then signalled that two new organisations will be established to look after the good and bad assets of the beleaguered financial sector.
The latest valuation puts the combined assets of the 58 finance companies at Bt950 billion, substantially less than the Bt1.6 trillion before they were suspended in June and August. Of this amount, probably as much as 50 per cent is in non-performing assets.
''The announcement to set up the good bank and bad bank is very positive for the Thai financial system," Vichai Punphocha, general manager of Dresdner Bank AG, said. ''It is the best way to salvage the assets of the country. This method was used in the US when they tackled their savings and loan industry. More importantly, it makes the matter more transparent."
There are two key points that Thailand needs to address adequately if it hopes to see a turnaround in the economy.
First, it has to strengthen the financial system. Secondly, the external account must be improved.
On the external side, the current account has already improved with a sharp fall in imports and a rebound in exports. If the trend continues, Thailand is on its way albeit painfully to gaining a current account surplus.
Foreign investors will take notice of the steadily positive trend in the external account over the next six months, but its cumulative effect will take time to come through.
Restructuring the financial system is a more immediate task. Not until the country had paid the dear price of the financial crisis and had gone through three Finance ministers did it finally come to grips with the heart of the problem. Now there is nothing else to lose and Tarrin, a talented financial manager, is at the helm to undertake sweeping financial reforms including revamping the Bank of Thailand.
The map of the road ahead has been clearly drawn up.
Tomorrow, the FRA chaired by Twatchai Yongkittikul, is expected to appoint ''special financial managers" to look after the separation of the good and bad assets of the 56 permanently-closed finance companies. Each failed company will have at least one or two special financial managers assigned to its headquarters. The separation of assets should be completed in eight weeks, Twatchai said. Creditors will then be fully informed of the amount of good and bad assets.
The good assets will be taken out and deposited at commercial banks before being transferred to the good bank, which should be established by February at the latest.
No details of the good bank have been provided but it is expected to be controlled by the creditors, or those who are willing to convert into equity their loans to the troubled finance companies.
The Asset Management Corporation (AMC) will concurrently enter the scene to tackle the bad assets. Twatchai emphasised that selling or auctioning off the bad assets will be handled with caution to avoid a collapse of the country's asset prices.
''We have to do everything within our means to prevent the assets in the country falling too sharply," Twatchai said. ''But we all know that in this severe economic environment and tight liquidity it might be difficult to find buyers. We need to create a mechanism to help in this asset disposal."
Twatchai admitted that the AMC, capitalised at only Bt1 billion, might not have the huge amount of money needed to bail out the financial system. ''But the AMC can look after the management of the bad assets with the help of former employees of the troubled finance companies. We may need to set up a hire-purchase company to supplement this purpose," he said.
More crucial is the pending announcement of how the government will deal with the remaining 33 finance companies and 15 banks and a sweeping programme to jump-start the real estate sector, which is the backbone of the Thai economy.
Tarrin will have to keep the pressure on the remaining banks and finance companies, which will need a massive injection of money to recapitalise and satisfy the regulatory requirements. A specific recapitalisation timeframe is needed.
In a separate interview, Tarrin said he has been informed of the remaining finance firms and banks which have weaknesses and plans have been drawn up to take necessary action. The authorities will be ready to intervene immediately if the plans submitted are assessed to be unrealistic.
Most analysts welcomed the government's tough decision to close the 56 finance companies, saying it is a good step forward in tackling the country's problems.
''Thailand has really gained the policy momentum with the announcement on the 58 finance companies, which is a very good announcement," Nikhil Bhati Srinivasan, vice president of Morgan Stanley Asia Ltd, said. ''Thailand is adjusting, but it is a long road. You can't expect things to improve immediately. But I say be patient over the next six months."
He said he expects the baht to improve sometime in the first quarter of next year, by which time the two-tier currency system is also expected to be lifted. The baht's volatility is now being influenced considerably by external factors, particularly the collapse of the South Korean won.
South Korea, Indonesia and Thailand are the three countries in the region with the most foreign debt obligations, one of factors most responsible for the heavy pounding of currencies.
''It's been a long road coming down, so it's going to be a long road going up," Srinivasan said.
Just hours after deciding the fate of the suspended finance organisations Twatchai said he is considering his resignation. ''I'm thinking of telling the Finance Minister to appoint a more appropriate person," Twatchai told a small group of reporters yesterday afternoon.