RECENTLY, the Bank of England took an unusual step. It invited a Bank of Thailand representative in London to attend a private session, and for the next two hours delivered a lecture on how the BOT had inexcusably mismanaged the failed Bangkok Bank of Commerce.

The BBC scandal not only cost the public more than Bt100 billion, but also set into motion a chain of events that ultimately caused a loss of confidence in the integrity of the BOT's supervision of financial institutions and brought about the financial crisis. The episode was sheer embarrassment for the Thai representative.

It will prove even more embarrassing tomorrow when Finance Minister Tarrin Nimmanahaeminda is scheduled to report to the Cabinet on the staggering bail-out costs of the BBC and other bankrupt financial institutions. The Financial Institution Development Fund (FIDF) has so far pumped about Bt1 trillion into Thai finance companies and banks to keep them afloat.

In the end, Tarrin will tell his Cabinet colleagues and the public, that subsequently it is the public who will have to foot the bill. Although this is a national tragedy, it is a price Thailand will have to pay if it hopes to ride out the financial crisis and escape the recession.

Tarrin's most challenging task is to explain to the Thai public how much they have to pay for the mistakes of the financiers and the bankers, who have blood on their hands from the collapse of the Thai economy after years of fraud, mismanagement and cronyism, and why. So far, nobody has come out with a full accounting of why it is absolutely necessary to use public funds to rescue the ailing banking system.

It is now universally recognised that a modern economy cannot function properly without a healthy financial system. If Thailand is unable to get its financial system going, it will be unable to recover from the recession given the fact that the loans in the banking system are about the size of Thailand's gross domestic product.

This year's economic growth has already been projected at minus 3 per cent. Further delays in tackling the financial crisis will prolong the recession.

David Roche, head of London-based consultancy Independent Strategy, was quoted as saying the use of public funds to rescue ailing banks in countries battered by Asia's financial crisis is inevitable if the region is to avoid a brutal, prolonged recession.

''Is it nice to bail out the people who caused the problem? No. Is it necessary? Yes,'' Roche said.

That is why from the outset the International Monetary Fund required Thailand to manage its budget to a surplus equal to 1 per cent of gross domestic product. This surplus was to be used to address the restructuring of the financial sector.

Nonetheless, fearing the budget surplus might inflict further damage on the already sharply weakened economy, Tarrin successfully negotiated with the IMF for a more flexible fiscal stance. However, the money to compensate the FIDF still must come from somewhere.

Beginning in fiscal 1999-2000, the Thai government will have to allocate from its budget a specific amount to pay the carrying costs, or interest burden, of the FIDF. As for the principal costs, funding will come largely from revenue gained from the privatisation of state enterprises.

Based on the estimated Bt1 trillion in support the FIDF has rendered to the financial system, the principal amount will have carrying costs of, say, Bt100 billion a year. However, not 100 per cent in short-term loans of the FIDF has gone sour. It gains some revenue by charging about 22 per cent to the troubled financial institutions. Therefore, the government will end up paying the net interest burden of the FIDF.

The Financial Sector Restructuring Authority recently noted it is likely to recover 30-60 per cent of the Bt800 billion assets it is liquidating on behalf of the 56 defunct finance companies, which received Bt450 billion in liquidity support from the FIDF. Again, based on this assumption, the FIDF will probably recover 30-60 per cent of its loans to the financial system, or about Bt300-Bt600 billion.

At the height of the financial crisis, the FIDF literally acted like an ATM for the troubled finance companies and banks. It received most of its money from the central bank by issuing bonds. When the central bank subscribed to the bonds, it technically printed more money into the system. To avoid committing this monetary sin, the central bank sterilised the process by taking an equal amount out of the system.

Foreign investors are monitoring closely how the Thai government is handling the FIDF. They would like to see a transparent, fully accountable process. The agency can't be given outright clemency for the debts it has piled up to bail out the financial institutions. The state will have to assume the responsibility. Since the state is formed by the public, by implication it is the public who have to assume the final responsibility.

However, if the government fails to provide an adequate accounting to the public over this highly-controversial issue, it risks a political backlash. Mounting criticism can easily turn into anti-government sentiment.