Thailand's 1997 debt: Ghost of 15 years past

Economist Tientip Subhanij provides background on Thailand's lingering 1997 crisis debt, not thought about much until recently.

Photo above of a person looking at photos of repossessed real estate being sold at a bank auction from non-performing loans after the 1997 Asian Financial Crisis. The FIDF debt discussed in today's article is the left over debt from the crisis, still unresolved 15 years after the crisis. 

Read the whole article here. The extract below gives the background on the FIDF's role in handling debt from the 1997 Asian Financial Crisis.

Click button to listen to FIDF 1997 Crisis Debt to download

ECO CAFE: Can anyone tame the debt dragon by Tientip Subhanij

[The economic prospects for the Thai and global economy have not been very good recently...]

...[One] attempt to restore confidence was the grand plan to issue four executive decrees to make it easier for the government to mobilise funds for rehabilitation and prevention of future flooding. Among the four, the most controversial one has been the decree to transfer of 1.14 trillion baht in debt incurred from the 1997 crisis to the Financial Institutions Development Fund (FIDF), an independent unit under the Bank of Thailand.

Admittedly, the ghost of the 1997 debt has been haunting us for a long time. Even with a decree to transfer the debt to the FIDF and off the central government's books, the ghost is not going to be laid to rest easily. To put things into perspective, let us recap what happened.

The FIDF was established in 1985 to provide support for rehabilitation of financial institutions, particularly in times of crisis. In 1997, in response to the East Asian crisis that was triggered by the floating of the baht in July, various measures such as a blanket guarantee for all depositors and bank bailouts were put in place, causing huge losses for the FIDF.

The fiscalisation of the FIDF losses of 1.4 trillion baht resulted in three rounds of bond issues: FIDF1 at 500 billion baht, FIDF2 at 112 billion and FIDF3 at 780 billion baht. Essentially, the principal and interest of FIDF1 are covered by central bank profits, while the principal of FIDF2 and FIDF3 is paid by profits from currency reserves. The interest burden for FIDF2 and FIDF 3 will be paid from the government budget. Unfortunately, despite all the efforts, the burden of the FIDF has only been reduced to 1.14 trillion baht. This is due largely to the foreign-exchange losses the central bank has incurred due to baht appreciation over the past handful of years.

The draft decree tries to solve this problem by imposing fees on banks to pay for the debt and enables the government to reduce its annual interest burden....

....The real issue for our fiscal sustainability may require more long-term thinking. The important factors to consider are weak tax administration, as seen from a large proportion of non-compliance of potential taxpayers, lack of a consolidated budget that reflects unfunded pension schemes whose financial cost could grow substantially as the population ages, and insufficient preparation for the upcoming Asean Economic Community when increased competition could drive businesses and skilled workers, an important source of tax revenue for the kingdom, out of Thailand.

In the wake of the painful public debt lessons from Europe, it is important that the government clarify its plans to reduce debts and deficits in the long run....

Dr Tientip Subhanij holds a PhD in economics from the University of Cambridge and has dual careers in banking and academia. She can be reached at [email protected]

(Source: Bangkok Post, ECO CAFE, Can anyone tame the debt dragon, 27/01/2012, Tientip Subhanij, link)

Banking and Economics Vocabulary

repossessed real estate - property, buildings, homes or condos taken from someone who has borrowed money to buy them but does not pay it back as agreed
non-performing loans (NPLs) - a loan on which the borrower has not made a payment for a particular period of time (the bank often takes the property as a result)
unresolved - the problem has not given a final solution yet

prospects - the possibility that something things will happen, especially something good   (See glossary)
economic prospects - the possible things that could happen to the economy in the future (especially good things)

the economic prospects for the Thai and global economy have not been very good recently

tame (adjective) - not wild or fierce, either naturally or because of training or long involvement with humans เชื่อง (สัตว์)
tame (verb) - make a wild animal, not wild, so that it can live with humans
debt - an amount of money that you owe หนี้
tame the debt dragon

restore - to cause a particular situation to exist again, especially a good one ฟื้นฟูสภาพ
confidence - feeling sure about something ความมั่นใจ ความเชื่อมั่น
restore confidence

grand - very big ใหญ่โต
grand plan - big plan (to achieve big and important goals)

issue - to announce something officially ออกประกาศ
executive - the highest level managers in a company or leaders
decree - an official order or decision made by the ruler of a country

executive decree - a decree made by the Prime Minister
issue executive decree

mobilise - organising a group of people to do something ระดมกำลัง เกณฑ์, รวบรวม, ระดมกำลัง เตรียมกำลังพร้อมรบ
mobilise funds - gather and collect money together (to use for some purpose)

funds - money needed or available to spend on something เงินทุน
rehabilitation - making a system, building, etc., suitable for use again, i.e., bringing it back to a good condition การฟื้นฟูสภาพกิจการ the process of returning someone or something to a good or healthy condition, state or way of living การทำให้กลับสู่สภาพเดิม, การทำให้กลับมาดีเหมือนเดิม

prevention - the act of stopping some bad event from happening
prevention of future flooding

...[One] attempt to restore confidence was the grand plan to issue four executive decrees to make it easier for the government to mobilise funds for rehabilitation and prevention of future flooding

controversial - causing disagreement or disapproval ความขัดแย้ง  ความไม่ลงรอยกัน
policy - a set of plans or action agreed on by a government, political party, business, or other group นโยบาย a plan of action to guide decisions and achieve outcomes (See Wikipedia)

controversial executive decree

transfer - to move someone or something from one place, vehicle, person or group to another ย้าย  to official arrange for someone else to be the owner of something โอน
debt incurred - debt that was added officially to their balance sheet and accounting books

transfer of 1.14 trillion baht in debt incurred from the 1997 crisis to the FIDF

independent - separate, not connected, working by yourself with your own resources, not influenced or affected by others; not taking help or money from other people พึ่งตนเอง free from outside influence เป็นอิสระ
independent unit - a part of an organization that is not connected to the rest of the organization (independent of the rest of the organization)

the most controversial executive decree has been the decree to transfer of 1.14 trillion baht in debt incurred from the 1997 crisis to the Financial Institutions Development Fund (FIDF), an independent unit under the Bank of Thailand.

haunting - 1. when you continually think and worry about something unpleasant over a long period of time; 2. when a ghost visits your home or room and frightens you and your family
perspective - opinion, view on an issue; a particular way of considering something ทัศนคติ มุมมอง ทัศนะ
recap - say again, what has already been said once; to tell a story again giving a shorter version

the government's books - the accounting system of the government
off the central government's books - not included in the government's balance sheet and accounting system

not going to be laid to rest easily - it is a problem that will not be solved easily

put things into perspective - see the true size of the problem (by looking at the whole situation)
recap - tell a story one more time (perhaps only a summary this time)

Admittedly, the ghost of the 1997 debt has been haunting us for a long time. Even with a decree to transfer the debt to the FIDF and off the central government's books, the ghost is not going to be laid to rest easily. To put things into perspective, let us recap what happened...

established - created
provide - to give someone something that they want or need
support - help, by giving money, for example สนับสนุน

institutions - large and important organizations, such as universities or banks สถาบัน
financial institutions - banks and organizations like banks
triggered - caused

floating of the baht - when the baht went from being fixed to the dollar to moving up and down in value against the dollar
floating exchange rate - when the exchange rate (price or value of a currency) is allowed to move up and down with supply and demand for the currency (See Wikipedia)

measures - actions taken to deal with a problem มาตราการ
blanket -  to cover something completely
guarantee - a promise that something will be done or will happen คำรับรอง, การประกัน (See glossary)
blanket guarantee - guarantee for everything

depositors - people who keep their money at a bank in exchange for interest payments
blanket guarantee for all depositors

bailouts - when the government helps out companies and saves them from failure by giving them money
put in place - create, set up some system and start using

The FIDF was established in 1985 to provide support for rehabilitation of financial institutions, particularly in times of crisis. In 1997, in response to the East Asian crisis that was triggered by the floating of the baht in July, various measures such as a blanket guarantee for all depositors and bank bailouts were put in place, causing huge losses for the FIDF.

fiscalisation of the FIDF losses - make the paying back of the FIDF debt a fiscal problem (pay it back through taxes)
fiscal policy - when the central government spends money on public services and projects and taxes and borrows to pay for it
monetary policy - when the central bank guides the level of interest rates in the economy so that inflation stays within a target range (this also determines the availability of loans and credit in the economy as well as the money supply)
three rounds of bond issues

principal - the amount of a loan; the amount borrowed that must be paid back
interest - payments made for the use of another's money for a period of time
the principal and interest of FIDF1

currency - a widely used the money accepted for exchange of goods in an economy เงินตรา (See Wikipedia)
currency reserves - the amount of foreign currency or gold held by a national bank, which is used for dealing with the national banks of other countries เงินสำรอง

interest burden - the interest payments that must be paid on money you borrow (as a charge for using other people's money)
burden - a serious or difficult responsibility that you have to deal with ภาระ  (See glossary)

budget - the amounts of money that an organisation has available to spend on different things during a period งบประมาณ (See Wikipedia)
government budget  

efforts - the work done towards achieving some goal; people trying to accomplish something, achieve a goal ความพยายาม

appreciation - when a country's currency becomes more valuable compared to the currencies of other countries (which makes goods exported from the country more expensive)
baht appreciation - the value of the baht rising (more valuable, buys more, compared to other currencies) 

foreign-exchange losses the central bank has incurred due to baht appreciation over the past handful of years.

handful - a small number (could fit in your hand) จำนวนน้อยมาก
the past handful of years - a few years (not a long time)

foreign-exchange losses the central bank has incurred due to baht appreciation over the past handful of years.

The fiscalisation of the FIDF losses of 1.4 trillion baht resulted in three rounds of bond issues: FIDF1 at 500 billion baht, FIDF2 at 112 billion and FIDF3 at 780 billion baht. Essentially, the principal and interest of FIDF1 are covered by central bank profits, while the principal of FIDF2 and FIDF3 is paid by profits from currency reserves. The interest burden for FIDF2 and FIDF 3 will be paid from the government budget. Unfortunately, despite all the efforts, the burden of the FIDF has only been reduced to 1.14 trillion baht. This is due largely to the foreign-exchange losses the central bank has incurred due to baht appreciation over the past handful of years.

draft - written for consideration, but not yet in its final form ฉบับร่าง
draft decree - the first version of the draft, to be changed, not the final version yet

fees - money paid for professional services and advice (from a doctor, lawyer, architect) ค่าธรรมเนียม
imposing fees - making people pay a fee (to use something)

annual - happening once a year ประจำปี
annual interest burden -  the amount that must be paid as "interest" as a fee for borrowing money (principal)

The draft decree tries to solve this problem by imposing fees on banks to pay for the debt and enables the government to reduce its annual interest burden....

fiscal - related to government spending; connected with the government budget, i.e., public money เกี่ยวกับงบประมาณ
sustainability - situation or activity can continue for a long time
fiscal sustainability - a pattern of government spending and financing this spending that can be continued on for a long time into the future
factors - the different things that affect the outcome of a situation, event, or decision ปัจจัย

lack - does not have ขาดแคลน
pension - a regular payment by a company or the government to people after their retirement เงินบำเหน็ด บำนาญ เงินบำนาญ (a system for saving money when young and working to spend during retirement when not working)  (See Wikipedia)

tax administration - the activity of collecting taxes from individuals and businesses

compliance - following a rule or law
non-compliance - the act of not following a rule or law

potential - possible ความเป็นไปได้
taxpayers - people who pay taxes (who don't want to see their hard-earned money wasted) ผู้เสียภาษี
potential taxpayers

consolidated budget
lack of a consolidated budget
unfunded pension schemes
as population ages

insufficient preparation for the upcoming Asean Economic Community
increased competition could drive businesses and skilled workers, an important source of tax revenue for the kingdom, out of Thailand.

....The real issue for our fiscal sustainability may require more long-term thinking. The important factors to consider are weak tax administration, as seen from a large proportion of non-compliance of potential taxpayers, lack of a consolidated budget that reflects unfunded pension schemes whose financial cost could grow substantially as the population ages, and insufficient preparation for the upcoming Asean Economic Community when increased competition could drive businesses and skilled workers, an important source of tax revenue for the kingdom, out of Thailand.

in the wake of - after (a big event)
clarify - to make something clearer and easier to understand ชี้แจงเหตุผล แจกแจง ชี้แจง ทำให้ชัดแจ้ง
deficits - when spending is greater than money coming in (must be financed by borrowing and increased debt)

In the wake of the painful public debt lessons from Europe, it is important that the government clarify its plans to reduce debts and deficits in the long run....