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The recent war of words between the government of Srettha Thavisin and the Bank of Thailand (BoT) is a stark reminder of how a conflict between the organizations that run the Monetary policy and the Fiscal policy could have an immense impact on the already fragile sentiment among investors on Thailand.
The conflict between the government and the BoT has come to another level after the leader of the Pheu Thai party – Paetongtarn Shinawatra, came out to say last week that the BoT was the hindrance to the potential economic growth of the country.
Her comments went viral, not because she is an economic expert, but because she’s the leader of the largest party in the coalition government that is in power.
The comments she made “The law that keeps the Bank of Thailand independent from the government … is a problem and a significant obstacle in fixing economic problems,” is being construed as being something that the government wants to change.
If this was not enough damage done to the conflict between the 2 sides, the weekend saw more issues being raised. Reports in the leading business news vernacular Thai language media – Krungthep Thurakij, stated that the government is looking at ways to return the more than 590 billion Baht in funds that is being managed by the Ministry of Finance (MoF).
More than 1.38 trillion Baht worth of debts of the Financial Institutions Development Fund (FIDF) were transferred to MoF as part of the move to help the BoT after the 1997 financial crisis (dubbed Tom Yum Krung crisis) which had left the BoT with no reserves after its failed attempt to intervene and fend off speculators and keep the fixed rate of 25 Baht to the US Dollar intact.
The argument being made is that with more than 590 billion Baht off the books of the MoF, the MoF would have a bit more financial leeway in borrowing money to revive the economy amid current constrains that does not allow the MoF to be able to access funds to stimulate the economy.
Not the 1st time
This move to possibly move the debts of the FIDF back to the FIDF was initially introduced in 2012 when the then government led by Pheu Thai party wanted to free up some of the debt ceiling in order to be able to borrow more and spearhead economic growth.
The offer at that point was to transfer 1.14 trillion Baht worth of debts from the balance sheet of the MoF back to the BoT but the then BoT Governor Prasarn Trairatvorakul, came out with an amicable compromise that kept the books as is.
With the Pheu Thai government back in power after the nearly 10-years of rule by the 2014 coup leader Prayut Chan-o-cha, the move to free up some room to be able to borrow for stimulating the economy has resurfaced.
The move to transfer the debts in 2012 was also met with opposition from the opposition and also the senators.
Credibility at Stake
The hopes of having as much as 591 billion Baht freed up is unlikely to be realized with this move because it would also mean that the FIDF would need to transfer its 55% holding in the state-owned Krung Thai Bank Plc (KTB).
KTB, which was also rescued by the FIDF after the 1997 financial crisis, is 55.07% owned by the FIDF and the nearly 235 billion Baht market capitalization would mean that the Ministry of Finance would need to fork out 129+ billion Baht to transfer the shareholding back to the MoF.
This is if the current market rate is offered, and not to mention such a transfer could also trigger other issues such as block trade, tender offer for all the remaining shares (as per the stock exchange laws). Thus, the MoF may have to prepare as much as 235 billion Baht for the transfer, leaving room for only 355 billion Baht in new possible borrowing.
To top this off the BoT currently manages the repayments of the FIDF’s debts.
So, one begs to question on why the government is looking to undertake such an audacious move that could leave it with yet another possible blackmark on its face.
The demand to lower the interest rates (2 times) by Prime Minister Srettha Thavisin was met with a simple vote of 5:2 to keep the rates at 2.50% during the past 2 meetings of the Monetary Policy Committee (MPC), and if this possible move to transfer the assets back to the BoT meets the fate it had seen in 2012, the credibility of the government could be at stake.
Both the branches the fiscal policy side (government) and the monetary policy side (BoT) need to sit down and hammer out their difference and show their united front to the public.
A divided message would be harmful to the country that is already battling a loss of confidence.
The revered former BoT chief – Puey Ungphakorn, had once said that the government and the BoT are like husband and wife, they can quarrel and fight but that should be done in the house, once they come outside the house, the family should show unity and harmony. That he said, would the optimal way to create confidence.
Loss of Confidence
Thailand is already facing a loss of confidence among foreign investors and despite the efforts made by Prime Minister Srettha to attract investments, the stock market is telling a different story.
The data speaks for itself.
Here are some facts to look into
Nothing needs to be said more than what the numbers are speaking. Maybe it is time that the confrontation between the 2 sides needs to be toned down for the sake of the country and issues be hammered out before it is thrown for bashing in the public domain.