Govt mulls transfer of debt from 1997 financial crisis to BOT


May 06, 2024

Over the past 8 months as Prime Minister, Srettha Thavisin has held differing views from the Bank of Thailand (BOT) on various issues. These differences include the digital wallet initiative and the perceived independence of the BOT, which the government sees as a hindrance in addressing economic issues.

A news report reveals that the government is laying out guidelines for managing the central bank in an attempt to promote government policies.

This partly relates to some of the public debt stemming from the financial crisis of 1997, which is currently accounted for in the Financial Institutions Development Fund (FIDF).

As of April 2024, the remaining debt balances in the FIDF 1 and FIDF 3 accounts amounted to 590.869 billion baht, down from January 2012, when they stood at 1.13 trillion baht.

Even though the government is placing this debt under the responsibility of the BOT, it has stipulated that the BOT would contribute to the FIDF by collecting a fee, known as the FIDF fee, from commercial banks at a rate of 0.46% annually. This fund would serve to compensate for this debt instead of allocating budget expenditures, which have previously amounted to 50 billion to 60 billion baht annually over the past decade.

This hangover from the 1997 crisis is still counted as public debt because it remains in the government’s debt account. Therefore, the Public Debt Management Office must record it in the country’s annual public debt report.

The government is of the view that the debt should be transferred in its entirety to the BOT’s debt management account and aims to enter into negotiations with the central bank accordingly. This would remove this debt from the FIDF, thus preventing it from being classified as public debt. Such a move would aid in managing the budget and public debt on the government’s side more effectively. It also aligns with the current public debt level, which is nearing the 70% threshold, considered the ceiling for public debt.

The reasoning behind the move is that this debt originates from financial institutions, not the government or the public. If discussions with the BOT result in transferring this debt so that it is managed by the BOT, there could be an increase in the proportion of debt repayments. The reduction in its allocation as public debt would also allow resources to be redirected towards policies beneficial to the public.

Nonarit Bisonyabut, a senior researcher at the Thailand Development Research Institute (TDRI), said: “Regardless of who oversees this debt, it is a debt that arose during the economic crisis of 1997. The country’s credibility is maintained by having it classified as public debt, instilling confidence in Thailand’s financial sector. Therefore, it is considered part of the public debt. To reduce this debt, we need to pay it off faster.”

Source: The Nation