BoT urged to take FIDF debt burden

Proposal takes amount off public books

Aproposal by a Finance Ministry official to shift the debt burden responsibility of the Financial Institutions Development Fund (FIDF) to the Bank of Thailand has been put forward, as the central bank is already responsible for repaying both the principal and interest of the debt.

According to a source from the Finance Ministry who requested anonymity, the FIDF’s debt burden, resulting from interventions to bail out financial institutions during the Asian financial crisis, totals 570 billion baht, estimated to take another nine years to fully repay with annual payments of 50-60 billion baht.

The source said if the ministry could move this debt burden off the public debt account, it would reduce the debt-to-GDP ratio by 5 percentage points.

The public debt-to-GDP ratio is currently 63.4%.

Bailing out financial institutions during the 1997 financial crisis resulted in the FIDF accumulating a debt burden of more than 1 trillion baht.

To instil confidence in the economy, the government took on this debt burden. As of September 2012, the FIDF debt tallied 1.13 trillion baht.

According to the source, it is inappropriate for this debt burden to be classified as public debt because the repayment burden derives from levies on financial institutions at a rate of 0.47% of deposits, which are then transferred to the FIDF for debt repayment, with the Finance Ministry bearing no part of this burden.

The fund’s debt is classified as public debt according to the definition in the Public Debt Management Act, while the debt burden of the Bank of Thailand, which oversees the FIDF, is not defined as public debt under public debt laws.

The source suggested it would be easier to amend the FIDF Act than the Public Debt Management Act, in an effort to shift the debt burden to the central bank. The government can amend the former more quickly, the source said.

The FIDF, a separate legal entity of the Bank of Thailand, was established in

November 1985 as a channel to provide financial assistance to troubled financial institutions.

Its primary objective is to contain financial losses and mitigate threats to the stability of the financial system.

During the 1997 financial crisis, the FIDF played a pivotal role in bailing out distressed financial institutions, alongside its regular duties of ensuring full repayment to depositors and creditors to uphold public confidence and system stability.

In its efforts to stabilise financial institutions facing difficulties, the FIDF acquired stakes in several such entities, including asset management companies, and managed assets and collected debts arising from its interventions.

As the crisis unfolded, many financial institutions either closed down, received substantial government assistance leading to state ownership, merged or sought foreign partnerships to survive.

To support more than a hundred troubled financial institutions simultaneously, the FIDF had to borrow significant funds, exacerbating its financial burden.

If the ministry could move this debt burden off the public debt account, it would reduce the debtto-GDP ratio by 5 percentage points. FINANCE MINISTRY OFFICIAL