Push 1997 crisis debt over to BOT?

To pay off huge debt politicians avoided for decades, can Bank of Thailand use foreign exchange reserves (that support exchange rate & exports)?

Read the most recent statements made by the government on the debt transfer here and the first response of the Bank of Thailand here and the original article two days ago here.

For background, read previous articles over the past several years here:  #7 #6 #5 #4 #3 #2 & #1.

Click button to listen to Debt Fight to download

Govt faces fight over huge debt, Central bankers refuse to accept responsibility by Parista Yuthamanop, Chatrudee Theparat & Wichit Chantanusornsiri

The government appears to be on a collision course with the Bank of Thailand over the ownership of 1.14 trillion baht in debt carried over from the 1997 economic crisis.

Prasarn Trairatvorakul, the governor of the Bank of Thailand, said the liabilities were the result of government policies set in 1997, and should not be considered the responsibility of the central bank.

Forcing the bank to take ownership would put huge pressure on its finances and undermine its credibility, he said. 

But Kittiratt Na-Ranong, the deputy prime minister overseeing economic policy, said the central bank would have to comply if the government approved a law transferring the debt.

"If the government issues a law, then state agencies must comply. I think that [the debt transfer] should be settled through a law, for clarity's sake," he said.

On Tuesday, cabinet ministers agreed in principle to the debt transfer, with Mr Kittiratt tasked with finalising the details with the central bank, the Finance Ministry, the Fiscal Policy Office and other economic agencies. The first meeting on the issue is set for tomorrow

The debt represents losses incurred by the Financial Institutions Development Fund (FIDF) from a government-approved bailout of ailing banks and finance companies after the 1997 crisis

The Finance Ministry is now responsible for paying interest on government bonds issued to cover the debt, with 618 billion baht in interest paid from the government budget over the past 10 years

Dr Prasarn said the liabilities stemmed from the decision by the Chavalit Yongchaiyudh government to guarantee deposits and debts of local financial institutions in a cabinet resolution issued in August 1997.

Here, the FIDF was the mechanism of the government, not the central bank. The bailout costs from the 1997 economic crisis came as a result of government policy," he said.

Dr Prasarn said a recent order from the Finance Ministry directing the central bank to change its plans to close the FIDF in 2013 also showed that the government still sees the fund as a tool to mitigate any banking crisis.

He said that international practice was for the government to take responsibility for losses incurred from a banking crisis. Even during the current eurozone crisis, debt-riddled countries such as Greece, Italy and Spain have not pushed banking losses on to the central bank.

The [FIDF liabilities] should be considered by Parliament, as it is responsible for the country's budget. There is no other entity in the country that can generate public income," Dr Prasarn said.

The economic argument against transferring such losses to the central bank - known as debt monetisation - is that it leads to an increase in the money supply, potentially devaluing the currency and fuelling inflation.

Dr Prasarn cautioned that transferring the FIDF liabilities to the central bank would hurt its credibility in setting monetary policy and push the bank's capital funds, already saddled with losses of 400 billion baht, into even greater losses.

He also questioned whether any transfer directive was legal. Under legal principles, a debt transfer from one party to another requires mutual consent.

But Mr Kittiratt said the central bank was clearly capable of managing the liabilities, considering that foreign reserves currently stand at $175 billion.

The cabinet approved [the transfer] as part of a plan to help finance investment in a 'New Thailand'," he said. "I believe the central bank should also consider its responsibilities to the country as well

Mr Kittiratt said that while the FIDF transfer would help cut the country's public debt burden, regardless of the outcome, the government will move forward with a plan to set up a 350-billion-baht fund to invest in new water management projects

Finance Minister Thirachai Phuvanatnaranubala suggested that a compromise could be found in the issue.

Mr Thirachai, himself a former central banker, acknowledged that forcing the central bank to accept the liabilities beyond its capacity was akin to "printing money", and a move that would negatively affect Thailand's reputation in global markets.

"Doing so could put Thailand on par with Argentina or Zimbabwe," he said.

While the principal FIDF debt would take up to 30 years to pay down, the immediate problem is how to account with the around 45 billion baht per year in interest costs, Mr Thirachai said.

He suggested consolidating profits generated from the central bank's reserve accounts would raise 25 billion baht per year in funds. Another 29 billion baht per year could come from shifting contributions now made by local banks to the Deposit Insurance Agency.

"Under this idea, the Finance Ministry can take responsibility for insuring bank deposits," he said.

"Mr Thirachai disputed the view that the FIDF funds were strictly the government's problem. "Whether it is transferred formally or not, it is already the central bank's responsibility," he said.

Abhisit Vejjajiva, the leader of the opposition Democrat Party, said an open dispute between the government and the central bank was to no one's benefit.

Challenging the central bank's independence "would only negatively affect confidence at a time when confidence is already weak", he added.

Somchai Jitsuchon, a senior economist with the Thailand Development Research Institute, agreed.

Both sides should focus on how to manage the FIDF debt, rather than debating who originated it.

I think all of the liabilities should be handled by one entity, rather than by two," he said. "Everyone would ultimately be taxed indirectly as a result of inflation if the central bank was forced to print money [to pay the debt

(Source: Bangkok Post, Govt faces fight over huge debt, Central bankers refuse to accept responsibility, 29/12/2011, Parista Yuthamanop, Chatrudee Theparat & Wichit Chantanusornsiri, link) 

Economics of Money and Debt Vocabulary
 
Key Vocabulary:

central bank - the biggest and most important bank in the country, that controls the supply of money in the country and monetary policy (its main job) and provides financial services to the government and other banks (See Wikipedia)
central banker - a high level government official at the central bank

monetary policy - the way in which a government or central bank controls the supply of money and credit in an economy (See Wikipedia)
inflation - the level of prices rising in the economy as a whole  ภาวะเงินเฟ้อ
increase in the money supply - typically causes an increase in inflation - (See Wikipedia)

Financial Institutions Development Fund (FIDF) - a fund managed by the Bank of Thailand that played a key role in rescuing failing financial institutions after the 1997 crisis (See Bank of Thailand)

1997 economic crisis - 1997 Asian Financial Crisis, "a period of financial crisis that gripped much of Asia beginning in July 1997, and raised fears of a worldwide economic meltdown due to financial contagion.The crisis started in Thailand with the financial collapse of the Thai baht caused by the decision of the Thai government to float the baht, cutting its peg to the U.S. dollar, after exhaustive efforts to support it in the face of a severe financial overextension that was in part real estate driven. At the time, Thailand had acquired a burden of foreign debt that made the country effectively bankrupt even before the collapse of its currency. As the crisis spread, most of Southeast Asia and Japan saw slumping currencies, devalued stock markets and other asset prices, and a precipitous rise in private debt" (See Wikipedia)

foreign reserves (noun) - the amount of foreign currency or gold held by a national bank, which is used for dealing with the national banks of other countries, often called just "reserves" เงินสำรอง (See Wikipedia and list of countries and China with the largest foreign exchange reserves supporting exports)
reserve (verb) - keep something to be used by someone for some purpose in the future สงวน kept for use for something or someone ที่จัดสรรไว้ สำรอง something currently not being used but that can be used when needed สำรองไว้

currency - a widely used the money accepted for exchange of goods in an economy เงินตรา (See Wikipedia)
argument - a reason or reasons why you support or oppose an idea or suggestion เหตุผล
potentially - may happen, possibly เป็นไปได้ possible in the future ที่อาจเกิดขึ้นได้

the economic argument against transferring such losses to the central bank - known as debt monetisation - is that it leads to an increase in the money supply, potentially devaluing the currency and fuelling inflation

capital - the amount that the owners of a business have invested in the business, the total value of stock shares (versus "debt" or money borrowed, the other type of business finance), also called "financial capital" or "equity" (See Wikipedia and glossary)
bank's capital funds - a bank's paid in capital is very important for its financial health and continued existence (to handle loan losses or loss of depositors) (See Wikipedia on bank capital requirement)

funds - money needed or available to spend on something เงินทุน
credibility - believability, trustworthiness, whether what a person says or does can be trusted 
saddled with losses - has lost money (creating a difficult situation)

Dr Prasarn cautioned that transferring the FIDF liabilities to the central bank would hurt its credibility in setting monetary policy and push the bank's capital funds, already saddled with losses of 400 billion baht, into even greater losses

everyone would ultimately be taxed indirectly as a result of inflation if the central bank was forced to print money [to pay the debt]  

I think all of the liabilities should be handled by one entity, rather than by two," he said. "Everyone would ultimately be taxed indirectly as a result of inflation if the central bank was forced to print money [to pay the debt]" 

ultimately - finally, in the end, after a series of things have happened ท้ายที่สุด, ตอนสุดท้าย, ในที่สุด
indirectly - not straight
entity - organization, part of the government

Mr Thirachai, himself a former central banker, acknowledged that forcing the central bank to accept the liabilities beyond its capacity was akin to "printing money", and a move that would negatively affect Thailand's reputation in global markets

Zimbabwe - the country with the public debt as a percentage of GDP (234% vs 43% in Thailand), which has ruined the economy (See Wikipedia on public debt and on Zimbabwe)
on par with - the same as, equal to
Doing so could put Thailand on par with Argentina or Zimbabwe

principal of the FIDF debt - the amount of a loan, the amount borrowed or lent to earn interest
principal plus interest - the two things that a borrower must pay back to the lender
pay down principal of debt - pay back part of the principal (sometimes only interest payments are made, which means the debt does not decrease and the the interest on the debt (which is a percentage of the debt) also does not decrease)

while the principal FIDF debt would take up to 30 years to pay down, the immediate problem is how to account with the around 45 billion baht per year in interest costs

capable - able to do something; very good at a job มีความสามารถ

but Mr Kittiratt said the central bank was clearly capable of managing the liabilities, considering that foreign reserves currently stand at $175 billion

central bank independence - it is commonly accepted among economists that "an independent central bank can run a more credible monetary policy, making market expectations more responsive to signals from the central bank" but "governments generally have some degree of influence over even 'independent' central banks; the aim of independence is primarily to prevent short-term interference" (See Wikipedia and Dictionary of Economics and previous article)

independence - not being influenced by or dependent on other people เป็นหน่วยงานอิสระ
confidence -  feel sure about something;  trusting and believing in something ความมั่นใจ ความเชื่อมั่น
challenging the central bank's independence "would only negatively affect confidence at a time when confidence is already weak" 

he said that international practice was for the government to take responsibility for losses incurred from a banking crisis. Even during the current eurozone crisis, debt-riddled countries such as Greece, Italy and Spain have not pushed banking losses on to the central bank
international - ระหว่างประเทศ between countries
practice - a way of doing something การปฏิบัติ
current - of the present time ปัจจุบัน

deposit insurance - insurance by the government "to protect bank depositors, in full or in part, from losses caused by a bank's inability to pay its debts when due. [See run on the bank] Deposit insurance systems are one component of a financial system safety net that promotes financial stability" (See Wikipedia)

generated - created
contributions - something that you do or give to help make something successful การช่วยเหลือ
insuring bank deposits
Deposit Insurance Agency

he suggested consolidating profits generated from the central bank's reserve accounts would raise 25 billion baht per year in funds. Another 29 billion baht per year could come from shifting contributions now made by local banks to the Deposit Insurance Agency

under this idea, the Finance Ministry can take responsibility for insuring bank deposits
disputed - disagreed มีความขัดแย้ง
strictly - completely อย่างเข้มงวด
transferred - moved โยกย้าย

guarantee - a promise that something will be done or will happen คำรับรอง, การประกัน (See glossary)
guarantee deposits - deposit insurance
stemmed from - came from, was caused by
institutions - large and important organizations, such as universities or banks สถาบัน
resolution - a formal decision taken at a meeting after a vote มติ

the liabilities stemmed from the decision by the Chavalit Yongchaiyudh government to guarantee deposits and debts of local financial institutions in a cabinet resolution issued in August 1997

The rest of the vocabulary:

debt - an amount of money that you owe หนี้
government faces fight over huge debt

responsibility - 1. being blamed for something that goes wrong, 2. having to take care of some task as part of your job
accept responsibility
refuse to accept responsibility
central bankers refuse to accept responsibility

collision - two or more objects hitting each other การชนกัน an accident in which a vehicle or person that is moving crashes into something การชนประสานงา
collision course - when two things are travelling towards each other and will soon hit each other
crisis - an urgent, difficult or dangerous situation วิกฤตการณ์ วิกฤต
the government appears to be on a collision course with the Bank of Thailand over the ownership of 1.14 trillion baht in debt carried over from the 1997 economic crisis

liabilities - 1. debts, the amount of money that a company owes หนี้สิน, 2. money borrowed by a company (liabilities + owners' equity = assets)
Prasarn Trairatvorakul, the governor of the Bank of Thailand, said the liabilities were the result of government policies set in 1997, and should not be considered the responsibility of the central bank.

pressure - a force causing change or damage (if too much)
undermine - make weak อ่อนแอ to make something or someone become gradually less effective or successful ทำให้อ่อนลง,ทำลายทีละน้อย,ทำลายอย่างลับ ทำให้กร่อน
credibility - believability, when many people believe that what you say is true; the degree to which something can be believed or trusted ความน่าเชื่อถือ,ความน่าไว้วางใจ
forcing the bank to take ownership would put huge pressure on its finances and undermine its credibility  

overseeing - managing, checking to see that it operates properly and nothing goes wrong
policy - a plan of action to guide decisions and achieve outcomes นโยบาย (See Wikipedia)
comply - to follow and obey a rule or law or do what someone asks you to do ปฏิบัติตาม (กฎหมาย, ข้อเสนอ, etc.) ปฏิบัติตามกฎระเบียบ
Kittiratt Na-Ranong, the deputy prime minister overseeing economic policy, said the central bank would have to comply if the government approved a law transferring the debt

transfer - 1. change ownership to another person; to official arrange for someone else to be the owner of something โอน; 2. to move someone or something from one place, vehicle, person or group to another ย้าย
issues - subjects that need to be considered; an important subect that people are discussing and debating about  ประเด็น
 
government issues a law - government makes a new law
state - government รัฐ
state agencies
state agencies must comply - the (permanent, non-elected) government departments must follow and do as it is told by the law
debt transfer - changing the debt from one person or organization to another
for clarity's sake - to make everything clear
if the government issues a law, then state agencies must comply. I think that [the debt transfer] should be settled through a law,  for clarity's sake

principle - a basic belief, theory, or rule that has a major influence on the way in which something is done หลักการ
agreed in principle - agree that it is a good (but have not completely agreed to do it yet)
meeting - when a group of people come together to discuss issues and make decisions การประชุม
issue - a problem that needs to be considered; a subject that people discuss or argue about ประเด็น

on Tuesday, cabinet ministers agreed in principle to the debt transfer, with Mr Kittiratt tasked with finalising the details with the central bank, the Finance Ministry, the Fiscal Policy Office and other economic agencies. The first meeting on the issue is set for tomorrow

bailout - help in the form of money to prevent failure and bankruptcy ช่วยไม่ให้ธุรกิจล้มละลาย (See glossary)
ailing - experiencing difficulty and problems; ill and weak ป่วยและอ่อนแรง
finance - to provide money for something จัดหาเงินทุนให้ (money to expand a business, project funding, borrow money to pay for something)

the debt represents losses incurred by the Financial Institutions Development Fund (FIDF) from a government-approved bailout of ailing banks and finance companies after the 1997 crisis

interest - payments made for the use of another's money for a period of time
issued - made available ออกใหม่
budget - the amounts of money that an organisation has available to spend on different things during a period งบประมาณ (See Wikipedia)
government budget - the money that the government plans to spend each year (on various things) 

the Finance Ministry is now responsible for paying interest on government bonds issued to cover the debt, with 618 billion baht in interest paid from the government budget over the past 10 years

fund - a place where money is kept for some purpose เงินทุน กองทุน
mitigate - to make something less harmful or serious บรรเทา

Dr Prasarn said a recent order from the Finance Ministry directing the central bank to change its plans to close the FIDF in 2013 also showed that the government still sees the fund as a tool to mitigate any banking crisis.

entity - something which exists apart from other things, having its own independent existence
generate - to produce ก่อให้เกิด create สร้าง กระตุ้นให้เิกิด
income - money that people receive from work or some other source, used for household consumption and savings

the [FIDF liabilities] should be considered by Parliament, as it is responsible for the country's budget. There is no other entity in the country that can generate public income

directive - an official order คำสั่ง
transfer directive - an official order to move something from one place to another place

principles - the basic rules (of some activity or event) กฎระเบียบเบื้องต้น
legal principles - rules of law

party - one of the people or groups of people involved in an official argument, arrangement or similar situation คู่กรณี
a debt transfer from one party to another

mutual - felt or done in the same way by each of two or more people ร่วมกัน
mutual consent - when both sides agree to something (not forced on either side)

he also questioned whether any transfer directive was legal. Under legal principles, a debt transfer from one party to another requires mutual consent

responsibilities - things that you must do as part of your job or position ความรับผิดชอบ
investment - taking your money and putting it into projects to make a profit or earn interest (buying stock shares, bonds, real estate)

"The cabinet approved [the transfer] as part of a plan to help finance investment in a 'New Thailand'," he said. "I believe the central bank should also consider its responsibilities to the country as well"

burden - a responsibility, a difficult thing that must be done, a heavy load to carry ภาระ (See glossary)
cut the country's public debt burden - reduce the amount of money that must be paid back (a very difficult thing to do)
outcome - a result; the situation that exists at the end of an activity or event ผล

Mr Kittiratt said that while the FIDF transfer would help cut the country's public debt burden, regardless of the outcome, the government will move forward with a plan to set up a 350-billion-baht fund to invest in new water management projects

compromise - when each side in a disagreement demands less in order to reach agreement; give up something to reach an agreement ประนีประนอม

Finance Minister Thirachai Phuvanatnaranubala suggested that a compromise could be found in the issue

printing money - increasing the money supply (to cause inflation, lower value of money and debt, inflate away debt, but also cause a lot of problem for people who have saved money for the future such as pensioners) 

acknowledged that - accepted the fact that
capacity - the ability to do something, the greatest amount of work that can be done (or traffic that can be handled) ความสามารถในการทำงาน ความสามารถ (ความจุ) ในการจัดการ
beyond its capacity - more than it is able to do (beyond its ability or capability)
akin to - similar to, almost the same as
reputation - what people believe and remember about about you (good reputation, bad reputation); the opinion that people have about how good or how bad someone or something is ชื่อเสียง ที่มีชื่อเสียง ที่เป็นที่รู้จัก
global - throughout the world; all over the world, including the whole world ทั่วโลก

Mr Thirachai disputed the view that the FIDF funds were strictly the government's problem. "Whether it is transferred formally or not, it is already the central bank's responsibility"

opposition - of a political party that is not part of the government or a group which is against the government ฝ่ายค้าน ผู้ต่อต้าน
dispute - an argument over some problem, a conflict; a serious disagreement การโต้เถียง, ความขัดแย้ง ข้อพิพาท
benefit - to get help or an advantage from something ผลประโยชน์
Abhisit Vejjajiva, the leader of the opposition Democrat Party, said an open dispute between the government and the central bank was to no one's benefit

focus - the main thing it is (or should be) concerned with ให้ความสำคัญ
originate - the one who created it
both sides should focus on how to manage the FIDF debt, rather than debating who originated it