Kriengsak Chareonwongsak Aviation can boost tourism

Aviation can boost tourism

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

This article was first published in The Bangkok Post in April 21, 2002 during a time when the Thai economy was in a stage of slowing down. The author of the article proposed some directions for improving commercial aviation; seemingly a small matter, which had been neglected. However, commercial aviation could be a great support to tourism without much investment.


Last year (2001), Thailand’s economic growth was only slight at 1.5% of GDP, which in itself created many challenges, and compelled the government to put greater effort into policies that would increase growth in the economy. Each economic impetus though faces many constraints, such as private consumption, which is currently saturated. The proportion of consumption for the first nine months of 2001 was 54.69% of GDP – similar to the 54.21% in 1996 before the economic crisis. This kind of situation hinders the stimulation of consumption, as there is increased unemployment and a slowdown of potential expenditure by the country.

Since Government expenditure has been used as the main mechanism of economic stimulation over the past three years it is now constrained by a public debt of 60%. Exportation expanded slightly due to pressure from the WTO’s inclusion of China and Taiwan whose membership affected many Thai export items. If we consider the constant rise of imports as seen in the first nine months of 2001 (44.1% of GDP), this trend could rise even higher to 49.12% of GDP, which is the pre-crisis figure.

Kriengsak Chareonwongsak Responsible debtors could lose

Responsible debtors could lose

Debt resolution could slow and some debtors escape bankruptcy, since pending NPL cases can be transferred to the TAMC. The debtors most likely to benefit would be those holding medium to large-size loans from multiple creditors. However, after such debts were transferred, the TAMC would be the sole creditor for them. This would facilitate more speedy decisions, as the TAMC has been given special powers to expedite the restructuring process. These special powers include debt to equity conversions, management changes and expedited foreclosure.

The drawback of this condition though is that group creditors would have no voice in the negotiations. Also, because the TAMC’s purpose is to rehabilitate, restructure, and increase liquidity according to national industrial and economic restructuring goals, some debtors could avoid bankruptcy. In theory, there is nothing wrong with this however, if the TAMC succumbs to political intervention there will be a tendency to induce corruption.  The moral hazard of the situation may become even worse as irresponsible debtors intentionally become strategic NPLs, as happened before. Also, the government still cannot create an incentive system to motivate financial institutions to expand credit and to narrow their interest rate spreads, after NPLs have been transferred. Undoubtedly, this could deprive responsible debtors from benefits, whilst giving irresponsible debtors, whose NPLs are transferred to the TAMC, privileges such as write-offs and reduced interest rates on their loans. 

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

Kriengsak Chareonwongsak Private financial institutions will benefit

Private financial institutions will benefit

Here, the phrase “private financial institutions” includes foreign creditors who are major shareholders in Thai financial institutions.

The first benefit gained by financial institutions is public participation in debt repayment. In other words, public taxes would be used to cover NPL losses. Under provision of the TAMC outlined above, private financial institutions would have to shoulder a maximum of 30% losses on NBV. Hence, up to 70% of losses on NBV could be borne by the TAMC.
Because of this, financial institutions could begin to transfer their worst NPLs – those that cannot be restructured – to the TAMC. Why keep NPLs that – either in their own hands or in the hands of the TAMC – would result in guaranteed losses? Thus, in most likelihood, NPLs that have a high probability of losses greater than 40% would be transferred first. As a result, financial institutions may begin to view the TAMC as an easy way out of heavy financial losses.

Second, by transferring NPLs to TAMC, financial institutions could gain greater stability in the short term. Transferring NPLs to the TAMC would ease pressures on private financial institutions to recapitalize, since – according to the Capital Adequacy Ratio (CAR) established by the previous government – each financial institution was responsible to recapitalize to 11.5% of their assets, a standard higher than the Bank for International Settlement (BIS) standard. Thus, by transferring NPLs, there would be less need to worry about recapitalization over an intermediate period of time.

The last advantage gained by the terms of the TAMC is they can gain better rates of return by treating TAMC interest notes as cash in hand. And how would this be done? Financial institutions that transfer their NPLs to the TAMC are guaranteed interest in the form of interest notes from the TAMC. Because these notes could be viewed as tradable funds, financial institutions could – in a pinch – use their TAMC notes in lieu of cash. As a result, financial institutions have more with which to make a profit. 

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