Tuesday, June 17, 2008

Reference: Surviving the rough times, Bangkok Post, June 17, 2008

The lecture by Thailand's finance ministry on how to survive the rough times (Surviving the rough times, Bangkok Post, June 17, 2008) is bitter irony because it is the finance ministry itself that sits at the nexus of a banking system that is inherently metastable and ill-suited for surviving rough times. The Bank of Thailand, the country's central bank and bank regulator, is not an independent body. Although it is held responsible for bank discipline, in fact it takes its orders directly from the finance ministry. At the same time most of the nation's banking assets are held by state owned banks. The manager of each these banks is held accountable for the bank's performance and yet she too takes orders from the finance ministry. That makes the finance ministry at once the nation's bank regulator and its largest banker but without any accountability whatsoever. The ministry outsources that responsibility to the BOT and to the managers of state owned banks. The finance ministry acknowledges that a "public service accounting system" needs to be applied but it has not been applied and there are no plans to implement such a system possibly because it implies that the responsibility for making policy directed loans will shift from bank managers to the government. The banking architecture of Thailand is not built to survive rough times.

Cha-am Jamal

1 comment:

Murtaza said...

The central banking structure needs to be improved. In Bangladesh, for example, banking reforms have yielded good results--private banks are independent from central control, and even the central bank works autonomously with little inteference from the finance ministry except for broad guidelines and in crucial sectors. Banks are free to raise or lower interest rates, the interbank call money market is very active and small loans can be given without collateral. Only the default loans of the State-owned banks is the big headache for the financial system.