An short explanation on Thai debt: FIDF

The Nation: Opinion, 

Charm needed to sway the central bank on debt burden

Thanong Khanthong

December 30, 2011 1:00 am

The former finance minister is heading a committee to rehabilitate Thai industry and infrastructure in the aftermath of the worst floods in 50 years. To reconstruct the economy, the government needs money. But, due to all the populist spending pledges, it is broke. Virabongsa's task is to help the government find the money - at least Bt350 billion for the time being.

The easy target is the Bank of Thailand, to which the government could pass on the burden of an old debt so that it can create a new debt for fresh spending.

The government needs a personality of Virabongsa's stature to battle against the central bank, whose governor, Dr Prasarn Trairatvorakul, is drawing up a strong defensive line. The battle now looks ugly, centring on the debt of the Financial Institution Development Fund (FIDF), an arm of the central bank.

The ghost of the FIDF will not be laid to rest easily. Every time a new government steps in, it wants to find a way not to service the debt of the FIDF, which used taxpayers' money to bail out the financial institutions in the 1997 Asian financial crisis to the tune of Bt1.4 trillion. The FIDF debt now stands at about Bt1.1 trillion.

The Yingluck government does not want to service the annual interest payment of Bt45 billion for the FIDF. It wants the central bank to assume all the Bt1.1 trillion of FIDF debt so that it has room to create new debt.

Thailand's public debt has exceeded Bt4 trillion, equivalent to 40 per cent of the gross domestic product. If the FIDF debt of Bt1.1 trillion is deducted from the overall public debt, the governmentwould be in a position to create new debt for massive spending. The government, prior to the floods, leaked a "New Thailand Project", through which it plans to invest Bt900 billion in the economy.

The Pheu Thai politicians live up to their repurtation as big-time spenders.

If my memory is correct, Dr Virabongsa used to oppose any attempt to pass the FIDF debt to the central bank, arguing that doing so would compromise the financial and monetary discipline of the country. He appears to have gone through a change of heart. He would like the central bank to dig into its foreign exchange reserves of more than US$180 billion to pay off the FIDF debt.

Governor Prasarn is protecting the central bank's turf. The FIDF debt was incurred by the previous government (led by General Chavalit Yongchaiyudh), which offered a 100 per cent blanket guarantee of the public deposits and creditors while the banks and finance companies were failing. No government in the world has hitherto issued a Cabinet resolution to protect creditors' rights like the Thai government, which did so under the directive of the International Monetary Fund.

Since it is the policy of the government to protect the public deposits and the foreign creditors' money, it must keep its promise. In this regard, Prasarn is correct to have insisted that the government continue to pay the debt of the FIDF.

The BOT's foreign exchange reserves are not totally secure. Foreign investors could withdraw their money out of the country any time in the event of financial shocks. If they were to flee the country (by converting the baht for the dollar before taking the money out) like they did in 1997, Thailand could lose its reserves in a hurry.

The position of Thirachai Phuvanat-naranubala, the finance minister, on the FIDF debt is not clear. Initially he wants the BOT to study a plan to help the government reduce the debt of the FIDF. He realises that the central bank is losing money from its monetary operations, resulting in a negative net worth of more than Bt400 billion. He wants the BOT to share the burden, but he opposes an outright monetisation of the FIDF debt, which would destroy the credibility of the central bank. By the way, Thirachai used to serve as BOT deputy governor.

If the BOT were to totally monetise the Bt1.1 trillion FIDF debt, it would increase its negative net worth to Bt1.5 trillion. In this case, confidence in the baht would wobble. That is the road Zimbabwe has taken.

Today, Kittiratt Na Ranong, the deputy prime minister, will call a meeting to set a plan for the Finance Ministry and the BOT to work out the FIDF debt. The details remain shrouded in mystery. But politically speaking, the Yingluck government has already sent an unequivocal message that the BOT must take the whole burden of the FIDF debt.

Weekly Anecdotes-International Organizations Acronyms: WB

1. WB: The World Bank

"Why is the World Bank called the World Bank when its Presidents have always been American since its inception in 1944?" I wondered. "Why don't they just simply call it the American Bank for International Development?" Then we'd not have any illusions about its true agenda.

"Spoils of war"...(WWII) is how I would prefer to refer the Bretton Woods Organizations. Yes, yes, I acknowledge, these organizations did contribute a great deal to the development of our modern global economy as it is today...but... I think after six decades we can start to ask, "How long are we still going to live in the shadows of one of humanity's darkest moments?" I'm all for learning from history, but really, do we want to eternally keep tying the way we think of ourselves to our worst moments? 

Then there's also the question, "To whom do the benefits accrue? To the so-called developed countries or to the developing countries whose help it was to be committed to?" Or I could even be more to the point and say, "To the country that doesn't even attempt to search around for its best and brightest to appoint as this organization's head?"

These questions came up to me when I started looking closely at the World Bank's declared raison d'être and changing realities of the global economy. It's been only 10 years since China joined the club (WTO) as a world trading partner that agrees to follow the sanctioned rules of international trade. In 2011, she surpasses the US as world manufacturer. In her 2nd decade after joining the club, she is expected to overtake the US to become the world's largest economy. Even if things go bust, and she doesn't make it by 2020, there's still 2030, according to our esteemed World Bank. By 2040, the citizens of China could well be richer than the citizens of Europe at the present moment.

So if the World Bank is supposed to represent its member countries by their sizes of economies, I couldn't help but wonder, "Can we expect a Chinese national as President of the World Bank in five years?" Not realistically.  Even if the World Bank would adjust its voting rights again so soon, along the lines of its 2010 WB voting rights adjustment, China could m-a-y-b-e earn around 8% of voting rights compared to US's 15%. Hmm, still not the decision makers there obviously. Don't even mention that China could influence international politics hard enough to have the US and EU change its de facto agreement concerning the appointment of WB's presidency. Well, I suppose I can still hope that the World Bank will continue its internal reform and search for the best and brightest, even among Americans, for the next World Bank President. 

Sufficiency economy pondered upon

"Sufficiency economy" can be better understood if it is seen as something quite uniquely Thai, with all its cultural nuances and non-translatable terms. It could be better understood if one is able to speak Thai and has followed its debate, discourse, promotion and implementation in the Thai language. When one tries to explain it in English, there are frustrating confusions, such as, is it an economic thought? Or is it a Buddhist philosophy? Is it the same as sustainable development or environmental sustainability? Most importantly, is it worth discussing or can it be applied anywhere else but in Thailand?

The person explaining from the Thai point of view can't explain it sufficiently, first, because of that frustrating incompatibility of the English language for explaining many Thai concepts. On top of that he/she is also challenged to apply western economic concepts to something that is more an expression of Buddhist philosophical thought than an economic thought. One speaks about the mind and its effects on the quality of life while the other speaks about quantitative monetary concepts. One calls for a middle way that considers family and community relationships and environmental responsibility, while the other is just looking for cost efficiency or the best price that expresses the right balance between supply and demand. How do you quantify the diverse levels of how each unique individual defines what is "sufficient" for him or his community? Price, demand, supply, efficiency, etc. becomes hopelessly inadequate as measurements. How does one quantify generosity or charity or a 'right' mind? Because sufficiency economy fails to answer these questions, its critics declare that it is not an economic thought nor a viable economic model.

The story of sufficiency economy developed in Thailand nearly along the same timeline as the story of how sustainability caught on as desired developmental goal recognized by the UN in 1972 at the UN Conference on the Human Environment held in Stockholm, popularized 15 years later with the Brundtland report (1987) and adopted as a major wold challenge at the Rio Earth Summit (1992). In Thailand, sufficiency economy was being shaped and implemented as an economic thought since the late fifties/early sixties when a young king travelled laboriously around his country initiating development projects where he could to better the lives of people in remote areas.

Despite its current popularity, sufficiency economy is not a mainstream economic model in Thailand. It is more like a supplementary prescription for the shaping of economic activities to counteract the ills of a dominantly capitalistic model. Sufficiency economy as an alternative economic thinking is one that is gaining ground one poor village by one poor village converted, as individuals who were inspired by its principals implemented and demonstrated successful local action again and again. In many cases, villages that could not feed themselves started growing their own food as an alternative to growing cash crops that had only caused them to become increasingly indebted. Instead of buying expensive fertilizers, they have expanded the supply of organic food, some even becoming successful with an export niche market.  At the same time, depleted forests are being regenerated and a future in which environmental and community awareness where values such as love, friendship, and generosity gain triumph over profit and greed are being re-enforced.

A recent article, "Sufficiency Economy" was published by PETER JANSSEN on The Manila Bulletin (http://www.mb.com/, December 27, 2010:  http://www.mb.com.ph/articles/295104/sufficiency-economy ), focused on a Thai abbot at Doi Pha Som forest temple (วัดธาตุดอยผาส้ม) in Chiang Mai, Sorayut Chayapanyo (พระสรยุทธ ชยปัญโญ), who had rebuilt an old temple, regenerated the surrounding forest, and helped villages grow out of debt. Stanford educated, but rejecting that privileged knowledge, he explains sufficiency economy as not being 'anti-capitalist' nor 'anti-Western', but as something between market economy and socialism. Sufficiency economy was shown as being meaningful in impoverished rural areas where access to the market economy was difficult. Money or greed were no longer the main locomotive of local economic activities once people learnt how to search for ways to become dependant on what they had.

This was not a new story for me. I have heard many very interesting local stories of how poverty was transformed into resourcefulness over the years adopting those principals proposed by the Thai King, proposed in his annual speech of 1972. What this story gave to me, this time, was the realization that it was the availability and strength of a localized social network or social structures, very particular to Thailand or maybe a Buddhist society, that plays an important role in nurturing the emergence of leadership or inspired action by individuals in the successful implementation of a sufficiency economic model.

Before Thailand became a modern economy with its building blocks in the late fifties/early sixties, much of its rural economy, community life or social fabric was structured around the temple. The temple was not simply a religious institution, it was also the place where education was being given, funds being raised for community development, and where the binds of society were formed and strengthened. In many cases, it was the ground where many non-monetary activities were supplementing the economic livelihood of its communities, with its festivals and fairs, funerals, alms giving and donations.

This was a social network that encouraged individuals to make a difference, usually with very small means.  As the modern economy grew, the state and modern markets took over much of the role that the temple played. Festivals are now just commercial events hosted on government grounds. They don't do much for that very personal tie that binds. As a modern Thai, I don't remind myself the value of giving each single day as my mother does, just by consistently getting up every morning to cook rice for a group of passing monks.

When I read yet another story of how one person transforms a community, it dawned on me that poverty is not converted by economic intervention, but by changing the emphasis on our values. When we review what we want of the world by starting a review of  our minds, not from the point of view of what objects or things we need, but from a point of view of what qualities in life we really need to make us contented, we can come to realize that we really don't need all those consumerist products and services the markets try to push on us. We then realize that we don't need to focus on chasing money so much when we can focus on just trying to define what makes us contented.

Climate Change Negotiations: An example of Public Diplomacy

Shah, Anup. “Reactions to Climate Change Negotiations and Action.” Global Issues, Updated: 04 Oct. 2009. Accessed: 06 Dec. 2010.

UNITAR's training program:
http://www.unitar.org/ny/environmental_negotiations

Thai cooking in Spanish

Recently inspired to find more simple solutions to making a video, finally got into editing on iMovie, and cut a DVD earlier produced into 4 minute shorts to upload to YouTube....



There's also more (cooking vdos in Spanish) to come at my YouTube channel:
http://www.youtube.com/user/netnapitasakorn?feature=mhum