Decrees get court approval

Verdict restores confidence but experts warn that it is the quality of the projects that will determine success in flood-prevention

The court verdict yesterday validating the government's emergency decrees restores confidence but the government's success in preventing future flood disasters will depend on the quality of their projects, say economists and business leaders.

Prime Minister Yingluck Shinawatra thanked the court yesterday and pledged to accelerate introduction of both short- and long-term measures to prevent flooding.

The Finance Ministry will soon submit for approval to the Cabinet new premiums for the banks and a timetable for repayment of the Bt1.14-trillion debt of the Financial Institutions Development Fund (FIDF) following the Constitution Court's ruling in favour of the government's executive decrees.

The ministry is also preparing to borrow funds to finance post-flood reconstruction projects under the Bt350-billion borrowing decree, Chakkrit Parapuntakul, director-general of the Public Debt Management Office, said. It may take 25 years to fully repay the Bt1.14-trillion FIDF debt, incurred during the 1997 Asian financial crisis, he said.

Areepong Bhoocha-oom, permanent secretary for finance, said the government was expected to borrow money from the domestic market.

Bank of Thailand Governor Prasarn Trairatvorakul warmly welcomed the Court decision. But while the decision will smoothen the shouldering of the fiscal burden, there are worries about the competitiveness of commercial banks against their regional peers.

From a deposit base of about Bt10 trillion, the extra fee of 0.07 per cent would raise about Bt7 billion per annum.

The governor said that regulations involving the surcharge collection would be announced before the collection takes place in the second half. Banks will pay additional surcharges on their deposit base, covering all deposits, bills of exchange and short-term bonds.

Smith Banomyong, executive vice president of Siam Commercial Bank, said the borrowing executive decree would stimulate the economy. On the debt decree, Smith said commercial banks were ready to pay the increased fees of 0.47 per cent.

Former finance minister Korn Chatikavanij, who petitioned the court, said he respected the court's verdict. He said the executive decrees prevent lawmakers from scrutinising the government effectively, as they cannot make changes to them.

Bank of Thailand Assistant Governor Chanchai Boonritchaisri said the central bank would collect fees at 0.46 per cent of a bank's deposit base, bills of exchange and debentures for payment of the FIDF debt. The commercial banks will also be required to pay a premium of 0.01 per cent to the Deposit Protection Agency, leading to total premiums of 0.47 per cent - up from a current 0.4 per cent.

State-run banks will also have to pay Bt0.47 per cent surcharge.

Meanwhile, Teerana Bhongmaka-pat, dean of Chulalongkorn Univer-sity's Economics faculty, said the court decision would restore public and investor confidence. But the government's success in preventing flooding depends on the quality of investment projects, he warned.

"Most of the government plan involves investment in construction projects to prevent flood disaster. This may result in higher costs and may not be effective," Teerana said, expressing his concern.

He feared that while some parts of the country would be protected, those who stayed outside the flood barriers could still suffer, so overall it might not be of much benefit to the country.

"If projects cannot generate returns as expected, then public debt would be much higher," he said.

On the debt decree, Teerana believed bankers would pass on the costs to depositors and might also take high lending risks for more returns to offset premiums paid to authorities.

Phongsak Assakul, chairman of the Board of Trade of Thailand and the Thai Chamber of Commerce, said the court's ruling has increased confidence that the government would have adequate budget to spend.

He urged the government to take action and set up a clear timeframe for proceeding with flood prevention plans.