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Sick of paying bills?

People face another crisis - that of faith

MR Chatu Mongol Sonakul, the Bank of Thailand governor, recently raised concerns about a "crisis of faith" among the Thai people. Even the central bank has yet to recover from the crisis of faith from which it has been suffering over the past five years since the Bangkok Bank of Commerce scandal and the subsequent financial crisis of 1997. Speaking at the Economic Reporters' Club two weeks ago, Chatu Mongol said: "Nowadays the Thai people don't have faith in any institutions, except the monarchy.''

Chatu Mongol's striking remark was made manifest last Saturday by the landslide Senate election victory of Pramote Maiklad, a dedicated civil servant in the Irrigation Department who for 20 years had faithfully served His Majesty the King in rural water development projects. When Pramote decided to run for a Senate seat, most pundits or political critics did not pay him any attention, believing that he was just another face among many candidates. As it turned out, Pramote mustered 421,515 votes, a staggering record from a broad-based Bangkok constituency.

During his civil service career, Pramote was frequently seen on TV, in newspapers or magazines, accompanying the King to develop water projects in remote areas. When people cast their votes for him, they were indirectly expressing their faith in the monarchic institution.

"Pramote is a good man because he used to work for the King. If he were not good, the King would not have allowed Pramote to work for him," said Napaporn Chuenprasaeng, a housewife. She also urged her husband and her relatives to vote for Pramote.

The Thai faith in the monarchy is phenomenal at a time when, as Chatu Mongol has indicated, all other institutions have been crumbling from years of cronyism, nepotism and negligence. The monarchy is the only institution that is holding the country together. But can Thailand move forward to achieve stability and prosperity if all its other institutions are weak?

Danger lies ahead if faith in the other institutions is not rebuilt. If you ask the average Thai whether he trusts the government, the Cabinet, the central bank, the commercial banks, the corporations, the police, the military, the political parties, the bureaucracy, the court system, the legal and accounting professions, the educational institutions, the Buddhist hierarchy or civic organisations, the answer would be a big "no".

Institutional weakness was one of the main causes that contributed to the deepening of the financial and economic crises. For when the crisis erupted, there was no confidence in the credibility of those institutions that are crucial for the orderly and efficient functioning of the capitalist system. Over the past 30 years of economic development, Thailand has not developed the sophisticated institutions needed to meet the expectations of a modern economy.

From London, Pin Chakkaphak, the financier who is locked in a legal battle with the Thai government on an extradition charge, challenged the due process of the Thai justice system. He declared: "I have no intention of going back to Thailand to stand trial because I have no faith in the Thai justice system. I don't trust the Thai authorities."

Understandably, Pin is trying to defend himself against criminal charges of embezzlement. But his challenge to the credibility of the Thai justice system is disturbing indeed. For the rule of law that provides protection and fairness to all parties should not be in question if we are to have a stable and prosperous society.

One of the main reasons that foreign money managers have pulled some Bt10 billion out of the Thai stock market over the past two months is that they have doubts about the judicial system's ability to handle the framework of bankruptcy. This follows more than two years of legal wrangling between Thai Petrochemical Industry Plc - saddled with more than US$3.5 billion in debts - and its creditor banks.

There are another 60 companies on the Stock Exchange of Thailand awaiting debt restructuring. The TPI case has sent a very negative signal about confidence in the debt restructuring of the others, thus prompting a big sell-off of Thai stocks that have further complicated economic problems.

Although the Thai banking system had outstanding loans of Bt5-Bt6 trillion, it was not supported by a modern bankruptcy framework until March of last year when bankruptcy and foreclosure laws and a central bankruptcy court were introduced through legislation.

In Germany, the liquidation process of distressed assets is being accelerated to completion from six months to within four weeks. This is to prevent damage from becoming more expensive. In Thailand, it looks as if the process could drag on forever, with institutions sitting on bad assets that will cost even more as time goes by.

For this reason, the International Monetary Fund and the World Bank are pressing the Thai government to strengthen its bankruptcy laws. Intrusive as the prescriptions about Thai structural reforms are, Thailand cannot avoid facing the reality of embarking on a comprehensive reform of its domestic institutions if it wants to achieve sustainable growth.

The scale of this institutional reform will be as drastic as, if not more so, than the one introduced more than 100 years ago when King Chulalongkorn, or King Rama V, launched a shake-up of Thai institutions to cope with the threat of imperialism. The outcome of the Senate election and the general election that will follow this year will determine the breadth and the depth of institutional reform, the outcome of which will be crucial to Thailand's survival in an uncertain future.




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