BOT’s losses will lead government to pay 55 billions THB

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. (Nation)

Unlikely ? That’s the joke of the day ! Read my article on the losses due to exchange rate manipulation. It’s amazing. The bank lost 228 billions THB since 2006, and has a debt of 2 trillions.

Therefore, the government will have to pay. No escape.

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).

Change lead into gold ?

It’s totally idiotic. Changing the “way the central bank keeps its books” wont’ change the very basic principle : when you buy something that is loosing value day after day (USD), you can cook your books as much as you want… It will remain a bad deal.

So to summarize :

-first reminder : the 97 crisis as not yet been settled. A lot of debts are still around. And the thai tax payers will eventually pay for the big 97 buy-out. Only fools and naive think that accounts were settled and the big boys went bankrupt and paid for their mistakes. The friends and the godfathers were saved.

-The promise that the BOT’s “profits” will be used to pay part of this debt is wishfull thinking. It was only a political promise.

-The central bank keeps buying USD to curb the appreciation of the THB (in order to save the Private Exports)… Short term effect. But on the long term, it’s like destroying value.

-those little “financial surprises” will seriously curb the ability of the new government to boost the public spendings. Too bad because it was supposed to be the ace card of the PPP in order to boost growth and compensate a weak private investment and consumption.

-Eventually, thai tax payers will pay for the short sighted policies of the authorities

-At that point, only a complete U-turn and a sharp increase of the USD, against all currencies, could solve the problem.

Obviously, the thai authorities are still hoping for this miracle. Unfortunatly, it looks unlikely, on short and medium term. The FED hasn’t finished yet its interest rates cuts cycle.