Kriengsak Chareonwongsak The government will benefit

The government will benefit

The first advantage gained by the government would be enhanced credibility in the eyes of the international community and domestic interests alike. Establishing the TAMC would fulfill one of the government’s election promises, namely, to establish a national-level AMC to cope with chronic NPL problems.

However, persuading private financial institutions to transfer bad debts to the TAMC may be easier said than done. The success of the TAMC is contingent on the new government’s ability to loosen overly stringent regulations that robbed the previous AMC of success. If the present government holds to its strict criteria in the early stages of establishing its TAMC – such as purchasing NPLs at 10-20% lower than NBV or penalizing only private financial institutions in the case of losses – private financial institutions will be sure to withhold their cooperation. If this happens, the government will be forced to revert to the NPL coping measures used by the previous government, which allowed each bank to operate its own private AMC. This would, in effect, cancel the political benefit obtained by the current government from its Urgent Policy List, considered one of its core economic recovery strategies. 

Second, if the TAMC solution works, the government would shield itself somewhat from accusations of using public taxes to subsidize financial institutions. Creating the TAMC could decrease strain on the budget. Under the old National AMC proposed plan, the government assumed full responsibility for all NPLs within the AMC network. However, under the new TAMC scheme, the government is only partially responsible for private institution NPLs; its responsibility only partially begins when loses on NPLs have reached the 21% mark-of-NBV. Structuring liabilities on NPL losses in such a way places a heavier responsibility on private financial institutions compared with the previous proposed National AMC scheme.

Social security for small businesses - losses and gains

Professor Dr Kriengsak Chareonwongsak
Executive Director, Institute of Future Studies for Development (IFD)
kriengsak@kriengsak.com, http://www.ifd.or.th