Deliberate leak of bank documents triggered BBC and Thai economy's collapse but will financier spill the beans on dodgy deals in '96?
In his second part of the series on the Bangkok Bank of Commerce scandal, Thanong Khanthong asks who ordered the closure of the bank in 1996 that triggered off the 1997 financial crisis.
In his fight against being extradited from Canada over the past 13 years, Rakesh argued that if he were to be sent back to Bangkok, his life could be at risk. He also said prison conditions in Thailand were horrible - compared, of course, to his luxury home where he was stuck under house arrest in Vancouver.
Indeed Rakesh Saxena's life may be in danger. But Korbsak Sabhavasu, the deputy prime minister, wrote in his web blog that Rakesh could not die as that would throw the political mess out of control.
Saxena lost the dramatic extradition case when the Supreme Court of Canada rejected any further appeal and sent him back to Bangkok last Friday. It gave no reason for rejecting his appeal.
However, Saxena has a full list of the politicians involved in the Bangkok Bank of Commerce scandal in 1996. Before leaving Vancouver, he issued a threat that he would tell all. Krirkkiat Jalichandra, the former president of BBC, also kept all documents to him?self.
If Saxena were to strike a pre-trial bargain plea with the Abhisit government by implicating politicians benefiting from BBC, he could compromise his safety in spite of the authorities' full assurance to protect him.
Saxena is now detained under 24-hour surveillance in the Bangkok Remand Prison hospital. His food is carefully screened. The Abhisit government has a full obligation to provide full and fair justice within the law to Saxena because it has won the extradition case. If the Saxena case is not handled with due process, chances are Thailand would have a difficult time winning extradition cases with other countries in the future.
Justice Minister Phiraphand Salirathawiphak said yesterday he had instructed the director general of the Corrections Department and the head of the Bangkok Remand Prison to look after Saxena, whose health is fragile. Saxena, 57, suffered minor paralysis on his left side after a stroke in March.
"I would like to stress that Rakesh is not receiving any privileges more than other inmates," Phiraphand said. "Since he is sick, he needs to be looked after. We have the same standard practice as applied to other inmates. Now Rakesh is being held in the hospital within the compound of the prison, with a surrounding wall and tight security. He is not getting any privileges."
The Democrat government has a lot of incentives to provide top security and safety to Saxena, because he could provide a link to politicians involved in the BBC scandal. Many of them are in the coalition government. Having Saxena in their control could help the Democrats hold their coalition partners in check. The Democrats want the coalition to survive till at least June 2010.
The politicians who benefited from the BBC are now not having a good night's sleep. They definitely do not want Saxena to open his mouth.
The man at the centre of the BBC affair was Ekachai Athikomnantha, then the bank's senior executive vice president.
He was politically connected to Sanan Kachornprasat, then the Democrat whip, and the PM Banharn Silapa-archa. Through Sanan, Saxena was introduced to the bank as Saxena impressed Sanan and others with his financial prowess. He practiced swaps, futures and options well before Thai bankers knew about these strange financial products. Thai financial laws did not cover these products, which allowed Saxena to test the law to the limit.
Although he was centrally involved in BBC, the name Ekachai quickly disappeared from public view after the bank collapsed. Sanan also quickly stepped out of the shadow of BBC before the financial scandal broke out.
Banking authorities sent Krirkkiat Jalichandra to be BBC president and rescue the bank. BBC was in big trouble with huge bad loans on its books. But the task of salvaging the bank was formidable. When Saxena came aboard as the bank's financial adviser, it was agreed the bank would shift away from normal practice to high finance - to try to strike gold on the stock market. If the bank could make quick profits, it would be able to clear all its bad debts in a swoop.
Saxena's unique position as financial adviser within BBC would not have been possible without strong political backup.
BBC tested the first drama script with a takeover bid from Song Watcharasriroj, alias Sia Song. More takeovers and acrobatic financial dealings would follow while money from the bank was drained overseas, first through Lebuan and the British Virgins Island and other financial centres of the globe. At the same time, the politicians, who tolerated this practice, got benefits from a series of questionable loans.
But this high finance ran against the tide. The stock market slumped by 40 per cent in 1996, as the real estate bubble was set to go bust. If the stock market was rally, Krirkkiat and Saxena would have emerged as heroes.
Vijit Supinit, then governor of the Bank of Thailand, kept the bank under his radar. He wanted a soft approach. The financial supervisors had asked him to take harsh action against BBC, but Vijit sat on it. He was doing everything to save BBC through a bail-out. He brought in the Financial Institutions and Development Fund and the Government Savings Bank to rescue BBC with a Bt60 billion capital increase. But it was too little.
Vijit had a good relationship with Krirkkiat. Vijit realised that closing down BBC would bring about a run of the financial system. But the politicians were all over his head.
At the time, the economy was severely overheated. The current account deficit hit 8 per cent of gross domestic product. The inflow from the Bangkok International Banking Fund (BIBF) made things worse as cheap money from offshore moved here enjoy the interest rate differential.
Later on, many questioned the sustainability of the Bank of Thailand's fixed exchange rate regime. The situation was aggravated by political conflict between Banharn Silapa-archa, the PM, and the Group of 16, who were trying to consolidate their own power. They included Suchart Tancharoen, Newin Chidchob, Varathep Ratanakorn, Sora-at Klinpathum, Thanee Yisarn, Wittaya and Sonthaya Khunplume. Their political ambition was boundless.
Suchart Tancharoen was deputy Interior minister in control of the police, while Newin Chidchob was deputy finance minister.
A minister belonging to the government leaked confidential bank documents to Suthep Thaugsuban, in the Democrat Party, then in opposition. The ulterior motive was to destroy the Group of 16. If anything were to happen to the bank, BBC could be shut down.
Suthep took the bait. Based on the documents, he launched a no-confidence debate in Parliament on May 9, 1996, and exposed how the Group of 16 benefited from a loan scandal at the bank. The world was shocked. Many Thais rushed to withdraw deposits from the bank.
On an order from Prime Minister Banharn, Surakiart Sathirathai told Vijit to close the bank. The implications were: 1/ The Group of 16 would be destroyed; 2/ The bank scandal would be covered up; 3/ blame could be shifted to Krirkkiat, Saxena, Vijit, and Surakiart.
Taxpayers had to foot initial losses at BBC of Bt200 billion. But the implications were much larger. The scandal triggered a loss confidence in the Thai financial system and the baht exchange rate, which subsequently turned into a loss of Bt4 trillion for Thailand as the economy collapsed like a house of cards in 1997-1998.