Thai government to unveil economic recovery package

Thai government to unveil economic recovery package

BANGKOK (AFP): Thai Finance Minister Thanong Bidaya said
yesterday economic ministers approved tough new regulations to
force a restructuring of the ailing finance sector as part of a
long-awaited economic recovery package.

The sector will be required to raise huge amounts of new
capital, so financial authorities have been given authority to
waive the current limit of 25 percent on foreign holdings in Thai
financial institutions.

Thanong, speaking at a news conference after a weekly economic
ministers meeting, said foreign investors will be allowed to hold
more than 50 percent of finance companies for up to 10 years, but
will then have to sell down their holdings.

"A capital increase or new shares must be offered to Thai
citizens or Thai institutions, therefore foreign holdings will be
reduced after 10 years to below 50 percent," he said.

No set limit on foreign shareholdings was given for the 10-
year period, but financial authorities said earlier it would be
decided on a case by case basis, with the rehabilitation of
failing institutions the greatest priority.

Companies that merge to survive the planned consolidation of
the sector will have to bring their capital to risk assets ratio
to as high as 15 percent in the first year, dropping to 10
percent in the third year.

The finance sector measures are part of a wide-ranging
economic rescue plan to be unveiled after Tuesday's weekly
cabinet meeting, one day ahead of schedule, the government
spokesman's office said.

The plan will include massive proposed cuts of 100 billion
baht (US$2.7 billion) to the budget for the year to September
1998, in line with the terms of a $17.2 billion International
Monetary Fund (IMF) bailout.

Thanong said economic ministers approved Monday a radical
restructuring of financial institutions and agencies seen as
vital to restore the confidence of international and domestic
markets.

The country is in the grip of a recession and a crippling
liquidity crisis.

Foreign and domestic financial institutions have virtually
shut down major lending activity in the wake of the 29 percent
depreciation of the baht, pending credible action by a coalition
government widely seen as divided and incompetent.

Thanong said the modified merger plan for 58 suspended finance
companies was proposed by a merger committee chaired by Amaret
Sila-orn, who resigned Saturday along with three other members,
complaining of political interference in their work.

The reform package will allow any of the 58 companies indebted
to the Bank of Thailand's Financial Institutions Development Fund
(FIDF) -- which lent more than 400 billion baht ($11 billion) to
suspended institutions -- to repay the loans within 8 years.

"The FIDF will also be allowed to convert its loans into
equity and to take up newly-issued shares of any finance
companies among the 58," up to 33 percent of total equity,
Thanong told a news conference.

But he said these companies would have "to meet debt provision
requirements and decrease capital by writing off bad debts
first."

Shareholders are expected to take huge losses when the
unrecoverable portion of bad debts estimated at 1.36 trillion
baht are written off, with some local bankers estimating that
half the country's tycoons will be wiped out.

All creditors will have an equal right to claim unpaid loans
against collateral, he said.