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Published on December 3, 2007

The assembly has several bills before it that need consideration ahead of a new government being sworn in.

"Both the Foreign Business Act and capital controls have captured the headlines over the past year, but one aspect largely ignored is the significant volume of other reforms the interim government has either passed or is likely to enact before its term runs out, all of which should ultimately facilitate a rebound in both confidence and expenditure," Frederic Neumann, an economist with HSBC in Hong Kong, said in a November 26 report.

The Surayud government is giving priority ahead of the election to passage of the Bank of Thailand (BOT), the Financial Institutions Business and the Deposit Insurance Agency bills. It hopes these laws will strengthen the Kingdom's financial system directly and economic growth indirectly. The Insurance Bill is up for passage, too.

The Financial Institutions and Insurance bills increase limits on foreign ownership of banks and insurers to 49 per cent from 25 per cent. The BOT law beefs up its supervisory powers. The Deposit Insurance Bill revamps the deposit-guarantee scheme.

The BOT legislation, which is currently in committee, might not boost the economy, but is important in providing greater flexibility for macroeconomic management. It will add checks and balances and lay down what its expected from the bank's governor. It demands reports to Parliament on monetary policy and performance.

It is asserted the law would deter the central bank from overdoing policy or operating as a "one-man show". It will be forced to look at factors other than inflation when making policy.

Making monetary policy more efficient will bring about sound economic growth and stability.

The Insurance and Financial Institutions bills will strengthen the banking system, which will later bring about economic stability. They contribute to financial equity in society and raise the banking system to international standards.

 The Insurance Agency Bill, also in committee, will protect depositors in line with international standards. It encourages depositors to be cautious, rather than relying on Financial Institutions Development Fund (FIDF) guarantees.

"The deposit insurance law will shake up the banking industry. Small banks will face more challenges in wooing depositors, whose concern will shift from interest rates to savings security," explained Finance Ministry financial-systems division director Chodechai Suwanaporn.

The assembly has passed the Financial Institutions Bill. It makes the central bank fully accountable for banking supervision. The BOT will be the sole banking trouble-shooter.

During the 1997 Asian economic crisis, both the ministry and the central bank hesitated to act because there was no clearly defined responsible party.

Before the crisis, savings in commercial banks were not guaranteed by the FIDF. The fund, however, had to restore confidence in the system by issuing a "blank-cheque" guarantee to both depositors and creditors.

BOT senior director Pong-adul Kristnaraj said the fund would continue as the guarantor of all bank savings if the bill was not passed.

"This is not a good thing. It means savers will never learn to take care of themselves," he said.

A BOT assistant governor, Krirk Vanikkul, said the bill provided increased accountability but, at the same time, limited supervisory authority.

The central bank is obliged to revitalise and rehabilitate banks under a "prompt corrective action" scheme, unlike in the past.

The central bank's consolidated supervision will be in line with international standards. Without legalised consolidated supervision, commercial-bank capital would not include subsidiaries, resulting in rapid decreases.

"We cannot avoid international standards. The credibility of banks would be reduced and it would cost them more to borrow overseas," Pong-adul said.

The law clearly states the accountability of loan guarantors, allowing them to better manage risk.

Fiscal Policy Research Institute director Kanit Sangsubhan said: "Officials at the Finance Ministry and Bank of Thailand have yet to fully agree on who should supervise financial institutions."

The ministry wants the government to set up an independent body to regulate the industry, but the central bank wants to maintain its role.

But there is consensus the country needs to develop further its capital markets. Nobody in the NLA is against the Public Debt Management Bill, the director of the ministry's Public Debt Management Office, Pongpanu Svetarundra, said.

The new law will enable the government to issue bonds for capital-market development. Currently the government can issue bonds only to finance budget deficits.

Finance Minister Chalongphob Sussangkarn said the new law would minimise the risks of bond misuse. Funds raised via bonds will be invested in safe, highly rated assets only.

Bonds can supplement the central bank's stabilising of the exchange rate, too.

The pending State Enterprise Corporation Act will allow the government to pursue privatisation transparently and in a way expected to earn public trust.

Privatisation is politically sensitive. People worry it could be open to corruption.

Thaksin Shinawatra's government was accused of manipulating privatisation for his own interests.

State enterprises with exclusive rights, such as the right to appropriate private land, will not be privatised.

An independent regulator is needed first.

Somkiat Tangkitvanich, a director at the Thailand Development Research Institute who helped draft the law, was confident it would serve the public interest. Clear rules will allow stakeholders, supporters of privatisation, opponents and the courts to find the best solution to conflicts.

So far, no political party is saying in its campaign that it will pursue privatisation.

Stock exchange chairman Pakorn Malakul Na Ayudhya suggested a new government list state enterprises on the market as part of its development as well as raising funds from the private sector for future investment.

The Private Sector Participation Act will close loopholes in current laws by clarifying public-private joint ventures. The ministry will return a role to the National Economic and Social Development Board. It will scrutinise joint-venture projects before they are proposed to the Cabinet. Opponents say it will make business harder.

The Civil Servants Act recently passed its third reading. It overhauls pay and promotion.

The law is supposed to secure the careers of top-performing people, but critics say corrupt politicians will find ways to circumvent the law and promote cronies. Corruption is widespread in the bureaucracy, they say.

Anoma Srisukkasem,

Wichit Chaitrong

The Nation