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Published on February 4, 2008

The new government will have to repay public debts incurred from previous banking rescue packages if the Bank of Thailand (BOT) fails to make profits, officials at the Finance Ministry said last week.

The Finance Ministry has to redeem savings bonds worth Bt55.19 billion due in September next year. The bonds are part of government bonds to compensate the Financial Institutions Development Fund (FIDF), which suffered severely from its rescue package in the 1997 crisis.

Previously the central bank agreed that it would transfer its profits to pay the principal of the bonds while the Finance Ministry would shoulder the cost of the interest.

The source said, however, that the central bank was unlikely to make any profit this year or next, so the government needs to pay the principal by using taxpayers' money.

Officials are preparing a draft budget bill for the 2009 fiscal year, which starts in October. The debt repayment will be a cause for concern for the new government when it plans public spending for the next fiscal year, with debt totalling Bt215.4 billion waiting to be managed.

High debts will squeeze public spending on other investment projects.

The BOT has lost money largely because of its intervention in the exchange-rate market. It recorded losses of about Bt100 billion in 2006. Having bought US dollars to restrain the rapid rise of the baht against the dollar has cost the bank dearly. Traditional central-bank bookkeeping practices are also blamed for book losses that do not reflect the actual performance.

Some critics have also said that the failure of the strategy to manage the exchange rate also added to the costs.

Outgoing Finance Minister Chalongphob Sussangkarn failed to modify the Currency Act in order to change the way the central bank keeps its books. A change of practices is expected to turn the book losses into profits and provide more flexibility for the central bank to use its international reserves of US$80 billion (Bt2.7 trillion).

The new government has not yet made clear whether it will make changes to the Currency Act or borrow money from the central bank.

According to Pongpanu Svetarundar, director-general of the Public Debt Management Office, the new government has to manage public debts worth about Bt900 billion over the next four years. Debts are mainly comprised of the cost of previous rescue packages and government budget deficits.

The Finance Ministry has prepared for the issue of new government bonds, rolling over debts and refinancing them.

Wichit Chaitrong

The Nation