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William Barnes

Thai Finance Minister Amnuay Viravan yesterday promised to take all measures necessary to arrest the country's deepening economic woes.

He warned, however, that it could take three years to recover from the problems that last week forced the government to intervene to protect the financial system against the impact of mounting bad debts.

'We cannot afford to win battles, but lose the war,' he said. 'We've got to win the war.

  'We can forget about enjoying 8 per cent growth rates. Those days are gone,' he told the Association of Finance Companies at a meeting in Pattaya.

After a decade of strong growth, the country is facing a collapse of export growth, a ballooning current account deficit and a bad-debt crisis in the lending industry.

  Mr Amnuay said the government's recent decision to carve US$4 billion off state spending this year will help bring the current account deficit below 7.5 per cent of GDP at least, after it hit 8 per cent last year.

  The central bank governor, Rerngchai Marakanond, also warned the country's 91 finance houses they would not be able to escape the impact of last week's measures, which force all domestic lenders to make extra provisions for bad debts.

   Mr Rerngchai said that the expected mergers of finance houses would create a stronger industry better able to withstand future foreign competition.

  He told the industry that it was 'a chance to revamp yourselves and adapt to a changing world'.

  Bank of Thailand officials see the problems as an opportunity to achieve their long-held desire to slash the number of finance houses.

  Mr Rergnchai offered the merger candidates the 'carrots' of increased business opportunities in areas such as foreign exchange trading, current accounts, entry into the banks' electronic payment system and banking licences for some of the biggest mergers.

  He warned any ailing finance houses that those attempting to stall change would face the 'stick' of having their internal accounts ripped open for public exposure and much tighter regulation.

  Last Monday the government raised the level of bad debt provisions it requires banks and finance houses to make - a move it reckons will cost each sector about US$1 billion each.

  To underline the point, the country's biggest finance house, Finance One, collapsed into the arms of the more prudent Thai Danu Bank following a terminal cash squeeze.

  Mr Rerngchai said that new, government-guaranteed bonds should help lift the crushing weight of non-performing property loans from financial institutions.

  The Property Loan Management Co will take, at deep discounts, property loans off the hands of lenders - who will contribute seed money - and sell them to the public who will be able to redeem them at hefty bonuses at the end of seven years.

  The governor admitted that the earlier Resolution Trust Fund - a vague plan to set up an organisation to buy struggling property ventures - was a failure because it 'merely shuffled the debts around from one hand to other'.

  The deal offers a combination of pain and profit for lenders and developers: property companies will pay only near-benchmark interest rates but will probably end up having to cut prices - something they have been reluctant to do.

  The banks offload their problem loans: but at a discount and the cost of some seed money.

  Most analysts said that this was a realistic and workable scheme; much better than the earlier Resolution Trust Fund.



Finance Minister vows to root out weakness in Thailand's financial system