Friday, January 6, 2012

Govt debt move takes flak Abhisit calls for details about investment plans

Opposition leader Abhisit Vejjajiva has called on the government to come up with detailed plans of what it wants to invest in before asking for more leeway to borrow.
He made his remarks after the government's move to transfer oversight of 1.14 trillion baht in debt from the Finance Ministry to the Financial Institutions Development Fund (FIDF).
The cabinet on Wednesday approved in principle a draft decree to transfer responsibility for the debt carried over from the 1997 financial crisis to the FIDF. It is expected to finalise the order later this month.
Mr Abhisit said the government would do better by reviewing its spending plans under the 2012 budget, which calls for spending of 2.38 trillion baht.
Shifting costs to the FIDF and local banks would ultimately result in higher interest rates for the public, affecting the entire economy, he said.
"The government has to be more transparent in how it is spending money. Many wonder whether the government will actually be able to meet its spending targets, while at the same time, it wants to borrow massively. For what purpose?" Mr Abhisit said.

On Thursday, bank stocks fell 3.3% on investor fears the policy, deemed critical to help finance new flood-prevention projects, would raise costs for local banks and ultimately consumers.
Under the draft decree, the FIDF will have the authority to collect an annual charge from local banks of up to 1% of their deposits to help repay the debt, or the equivalent of up to 70 billion baht a year.
The debt stems from the bailout of depositors and creditors of ailing banks during the 1997 crisis. Currently, the Bank of Thailand (BoT) is obliged to pay off the debt from its annual profits, while interest expenses are charged to the annual government budget.
But over the past decade, the total debt has only fallen by 231 billion baht. Over the same period, taxpayers have had to pay more than 600 billion baht in interest costs. The fiscal 2012 budget sets aside 50 billion baht for interest payments on FIDF debt.
Also, disciples of revered monk Luang Ta Mahabua came out to oppose the government's debt transfer attempt. They argue the move would undermine the country's international reserves and economic stability.
Around 100 monks and layman followers of Luang Ta Mahabua visited the Finance Ministry and BoT yesterday to voice opposition to the draft decree.
Luang Ta Mahabua, who passed away in early 2011, led a highly public campaign during the 1997 crisis to solicit gold donations to help supplement the country's international reserves. The monk and his followers later led a prominent campaign against moves by the Chuan Leekpai government to adjust accounting practices at the central bank, a factor that contributed in part to the victory by Thaksin Shinawatra during the 2000 election.
The disciples yesterday said two sections of the draft decree were potentially dangerous for economic stability. Section 7(2) of the draft calls for annual earnings generated from reserve investments to be directly transferred to the FIDF rather than going to the central bank's special reserve account. Section 7(3) meanwhile gives the cabinet authority to direct the central bank to transfer funds or assets to the fund at its discretion.
Deputy Prime Minister Kittiratt Na-Ranong argues that shifting the liabilities to the FIDF will give the government budget flexibility to help finance some 350 billion baht in planned investments in water management programmes.
He repeated yesterday that the decree would save taxpayers paying interest expenses and have no impact on the country's international reserves.
Mr Kittiratt said the draft, now under review by the Council of State, could be issued as an emergency decree or a parliamentary bill, and would next be reviewed by two strategic committees set up to oversee reconstruction and water management programmes formed by the government in the wake of last year's floods.
"Personally, I think this should be issued as a decree, to give the public and investors confidence that the government remains committed to financial and monetary discipline while still being able to raise funds to finance our long-term water management projects," he said. "Our target is to complete these projects within three years."
Mr Kittiratt said once the 2012 budget is finalised by parliament, investment in short-term water management programmes could begin immediately to help guard against flooding before the start of the monsoon season in the middle of the year.
He said the 350-billion-baht water investment budget focused primarily on flood prevention and irrigation systems in the Chao Phraya River basin. "But in reality, we also need to invest in management systems for another 24 key water basins across the country, to help safeguard against flooding and natural disasters," Mr Kittiratt said.
The flooding last year was the worst in decades, with more than 700 deaths and one-third of the country inundated, including industrial estates in Ayutthaya, Pathum Thani and Nonthaburi.
In addition to new investment programmes, the cabinet also will establish a 50-billion-baht insurance fund to help companies secure flood insurance, and set up a low-interest loan programme to assist companies and homeowners rebuild flood-affected properties.
Mr Kittiratt said details of the water management projects would be finalised this week by the Strategic Committee for Water Resources Management (SWRM) and announced to the public on Jan 14.
Chakkrit Parapuntakul, the director-general of the Public Debt Management Office, said under the terms of the draft decree, the FIDF debt could be cleared within 30 years.
He said financial institutions should play a role in helping pay off the debt as the liabilities arose from the 1997 bailout of depositors and creditors of ailing banks and finance companies.
Local banks already pay a surcharge equal to 0.4% of their deposits to the Deposit Protection Agency to finance a limited insurance scheme on bank deposits. The decree calls for the current DPA levy to shift to the FIDF, with the BoT authorised to raise the levy to as high as 1% of deposits a year.