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Published on February 8, 2008

Atchana said the government would not offer the bonds in a single issuance to finance mega-project investment.

The market has already been flooded with excess liquidity, causing the central bank to issue more than Bt1.3 trillion in bonds to absorb it.

"The mega-projects are not a one-year investment," Atchana said.

The government has announced that it will finance its mega-project investment with domestic funds. This has led to concern over a crowding-out effect, as the private sector might find it hard to finance its own investments or may have to do it at a higher cost due to the public investment.

Some analysts, however, suggest the government should finance the investment domestically in order to reduce the problem of excess liquidity.

BOT assistant governor Suchada Kirakul said the issuance of the government's bonds would help absorb the flood of liquidity in the system. The BOT, however, could step into the market to inject liquidity when needed.

"This amount of liquidity is in the system when the economic recovery is fragile. But when the economy picks up, liquidity will decline," she said.

Suchada said the government would issue the bonds only when it needs to spend the money. It has a joint plan with the central bank over a schedule for their issuance.

She is optimistic that the government bonds will increase investment channels for depositors, while demand for bonds is currently higher than supply.

In addition, the public investment will contribute to rising economic activity, which will lead to a multiplier effect: the private sector will earn from the public spending and consequently spend on goods and services.

The BOT plans to issue saving bonds worth Bt50 billion for individuals, with four and seven years of maturity. The coupon rates will be based on the government bond yields in the same maturity on February 15, plus a spread of no more than 15 per cent of the yield.

The bonds will be available during February 18-26 at nine correspondent banks. Bondholders will receive fixed interest payment semi-annually on February 27 and August 27 of every year until maturity.

Atchana said the central bank wanted to increase investment choices for savers and investors with low-risk bonds and constant and high returns compared with deposit interest rates.

Moreover, the issuance aims to meet existing demand, which is likely to be higher in the future, particularly when the behaviour of savers changes after the Deposit Insurance Agency Act is implemented, she said.

"Each subscriber must forecast the interest-rate trend along with risk management by themselves before making a decision. Subscribers must consider whether they are satisfied with the yield and project whether commercial banks will cut deposit rates," said Atchana.

Bangkok Bank senior executive vice president Teera Aphaiwongse said the interest-rate trend depended on economic conditions and mega-project investment.

Anoma Srisukkasem

 The Nation