Bank of Thailand under fire over debt
The new government is not letting any grass grow over it. On his first day in office, Finance Minister Thirachai Phuvanatnaranubala said he was unhappy with a debt of 1,14 trillion baht still on the books of the Bank of Thailand stands. Last year it cost the state 65 billion baht in interest, this year 80 billion because interest rates are rising.
The debt is a remnant of the financial crisis in 1997 and placed in the so-called Financial Institutions Development Fund (FIDF). Since the fund was established, the government has paid 560 billion baht in interest, but the principal has remained almost unchanged. The previous government failed to clear the debt. The central bank chairman says that the Treasury is responsible for the debt because it issues the shares used to refinance the debt.
According to Chakkrit Parapuntakul, head of the Public Debt Management Office, the debt will not disappear as long as the bank maintains its policy of intervention in the baht and inflation. The bank is withdrawing liquidity from the market to keep core inflation (inflation excluding the volatile prices of food and fuel) below 3 percent and raising interest rates to incentivize financial institutions to buy the Treasury bills it issues to withdraw liquidity from the market . As interest rates rise, more capital is drawn to Thailand, causing inflation to rise again, leading to a vicious cycle and deadlock for the bank. In addition, the bank incurs higher costs than the market average because it invests in assets with a low return.
Instead of issuing shares to absorb liquidity, Chakkrit said the bank would be better off making more profit on the liquid assets it already owns. Chakkrit is also concerned about the bank's tendency to curb the pace of the baht's appreciation in favor of the export sector. The costs of these interventions are high and result in continuous losses on the balance sheet.
The central bank has US$189 billion in foreign reserves (5,6 trillion baht) and yet it is posting an annual loss of 200 billion baht. The liabilities amount to 4,2 trillion, with interest and payments of 200 billion baht per year.
"Considering the balance sheet, it is clear that we have to consider how to make a profit from the huge assets to reduce the liabilities," said Chakkrit.