BOT seeks to wipe out its red ink
The Nation (8 October 2007)
Institution wants new government to clear forex loss. In a move that is likely to be politically sensitive, the Bank of Thailand will propose that the new elected government wipe out its book loss, which was caused by currency intervention in the foreign-exchange market to halt the rapid rise of the baht. The BOT plans to make the request as it will not be in a position to recover from the loss on its own and does not want to maintain a negative net worth of Bt69.77 billion in its balance sheet. The central bank is considering options such as asking the government to proclaim an executive decree to eliminate its loss, or it might call for the government to recapitalise by setting the budget so as to wipe out the loss. BOT Governor Tarisa Watanagase said the central bank might allow its balance sheet to improve itself even though it needed the recapitalisation. However, the proposal would have to be approved by the elected government, not the interim government. Assistant governor Suchada Kirakul said that if the central bank made a net profit, the negative net worth could be erased. "Currently, there is no law to carry off the loss. The government may raise the capital," she said. BOT Deputy Governor Atchana Waiquamdee said if the government did not want to see the BOT in the red, it could issue an executive decree. The central bank will not be able to contribute its income to the Finance Ministry if its balance sheet showed the net loss. The BOT book loss could be politically sensitive. Even though the loss from the currency intervention would appear only in the book, the huge loss could have a psychological impact. Former central bank governor Rerngchai Marakanond was sued for causing a huge loss through currency intervention. As the baht is set to appreciate further, the central bank is likely to incur further losses to counter the volatility of global capital movements. The United States' twin deficits and its property-sector problems could also lead to the dollar's depreciation and the baht's appreciation. Further intervention by the BOT to halt the baht's rise could add to its book loss. Atchana said she could not project this year's bottom line in its book, as it partly depended on the baht level at the end of the year. "If the US economic policies are not good, the dollar will be weaker, contributing to the baht's strength," she said. So far, the baht has strengthened more than 5 per cent against the greenback since the end of last year. The BOT, it is estimated, bought US$19 billion from the foreign-exchange market to rein in the baht in the first nine months of the year, calculated from changes in international reserves and net forward positions. As of September 28, the central bank foreign exchange reserves were $80.7 billion and the net forward position was $12.9 billion. Last year, the BOT posted a net loss of Bt102.29 billion, due to large expenses of Bt170.36 billion but low revenues of Bt68.07billion. It is estimated that the central bank bought about US$18 billion in the forex market last year to slow down the appreciating baht, which rose 18 per cent, from Bt41 to Bt36 a dollar. The strong baht brought about the tremendous loss of the mark-to-market international reserves, although returns on investment will be higher than interest expenses from bond issues to absorb the flood of liquidity. According to the BOT's annual report, net losses on foreign exchange reached Bt99.73 billion, accounting for almost 60 per cent of total expenses. Moreover, interest expenses were Bt62.11 billion, or 36 per cent of total expenses.
Being in the red would hamper the BOT's ability to contribute revenues to the Finance Ministry. As a result, the ministry would have less money to pay interest to holders of bonds issued to compensate for the burden of the Financial Institutions Development Fund. The ministry would have to contribute more from its budget for such compensation.
The central bank has struggled from the huge loss incurred during the economic crisis, when foreign speculators dumped the over-valued baht and foreign investors and creditors took their money out of the country. The BOT posted net losses for five straight years, with a net loss of Bt67.61 billion and negative net worth of Bt36.41 billion in 1997. However, it had a turnaround in 2002, when it recorded a net profit of Bt11.89 billion, resulting in a net worth of Bt39.85 billion. The Bank of Thailand said Friday that its foreign reserves as of September 28 were $80.7 billion, compared with $79.7 billion a week earlier.
The Nation (8 October 2007)
Institution wants new government to clear forex loss. In a move that is likely to be politically sensitive, the Bank of Thailand will propose that the new elected government wipe out its book loss, which was caused by currency intervention in the foreign-exchange market to halt the rapid rise of the baht. The BOT plans to make the request as it will not be in a position to recover from the loss on its own and does not want to maintain a negative net worth of Bt69.77 billion in its balance sheet. The central bank is considering options such as asking the government to proclaim an executive decree to eliminate its loss, or it might call for the government to recapitalise by setting the budget so as to wipe out the loss. BOT Governor Tarisa Watanagase said the central bank might allow its balance sheet to improve itself even though it needed the recapitalisation. However, the proposal would have to be approved by the elected government, not the interim government. Assistant governor Suchada Kirakul said that if the central bank made a net profit, the negative net worth could be erased. "Currently, there is no law to carry off the loss. The government may raise the capital," she said. BOT Deputy Governor Atchana Waiquamdee said if the government did not want to see the BOT in the red, it could issue an executive decree. The central bank will not be able to contribute its income to the Finance Ministry if its balance sheet showed the net loss. The BOT book loss could be politically sensitive. Even though the loss from the currency intervention would appear only in the book, the huge loss could have a psychological impact. Former central bank governor Rerngchai Marakanond was sued for causing a huge loss through currency intervention. As the baht is set to appreciate further, the central bank is likely to incur further losses to counter the volatility of global capital movements. The United States' twin deficits and its property-sector problems could also lead to the dollar's depreciation and the baht's appreciation. Further intervention by the BOT to halt the baht's rise could add to its book loss. Atchana said she could not project this year's bottom line in its book, as it partly depended on the baht level at the end of the year. "If the US economic policies are not good, the dollar will be weaker, contributing to the baht's strength," she said. So far, the baht has strengthened more than 5 per cent against the greenback since the end of last year. The BOT, it is estimated, bought US$19 billion from the foreign-exchange market to rein in the baht in the first nine months of the year, calculated from changes in international reserves and net forward positions. As of September 28, the central bank foreign exchange reserves were $80.7 billion and the net forward position was $12.9 billion. Last year, the BOT posted a net loss of Bt102.29 billion, due to large expenses of Bt170.36 billion but low revenues of Bt68.07billion. It is estimated that the central bank bought about US$18 billion in the forex market last year to slow down the appreciating baht, which rose 18 per cent, from Bt41 to Bt36 a dollar. The strong baht brought about the tremendous loss of the mark-to-market international reserves, although returns on investment will be higher than interest expenses from bond issues to absorb the flood of liquidity. According to the BOT's annual report, net losses on foreign exchange reached Bt99.73 billion, accounting for almost 60 per cent of total expenses. Moreover, interest expenses were Bt62.11 billion, or 36 per cent of total expenses.
Being in the red would hamper the BOT's ability to contribute revenues to the Finance Ministry. As a result, the ministry would have less money to pay interest to holders of bonds issued to compensate for the burden of the Financial Institutions Development Fund. The ministry would have to contribute more from its budget for such compensation.
The central bank has struggled from the huge loss incurred during the economic crisis, when foreign speculators dumped the over-valued baht and foreign investors and creditors took their money out of the country. The BOT posted net losses for five straight years, with a net loss of Bt67.61 billion and negative net worth of Bt36.41 billion in 1997. However, it had a turnaround in 2002, when it recorded a net profit of Bt11.89 billion, resulting in a net worth of Bt39.85 billion. The Bank of Thailand said Friday that its foreign reserves as of September 28 were $80.7 billion, compared with $79.7 billion a week earlier.
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