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.