| BUSINESSWEEK ONLINE : MAY 24, 1999 ISSUE | ||||||||
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| INTERNATIONAL -- ASIAN BUSINESS
'We Are Actually Changing the Structure of Thailand's Economy' (int'l edition) Bank of Thailand chief Chatu Mongol on the IMF and reform Chatu Mongol Sonakul, 56, is Thailand's third central bank governor in as many years. But as the great-grandson of a Siamese king, he's using Thailand's respect for royalty, as well as a long track record in government service, to set an example. Since taking over in April, 1998, he has revamped the Bank of Thailand's procedures, stabilized the baht, slashed interest rates, and cut reserve requirements in half. Chatu Mongol has also championed a new law to make banks more competitive and has seen three of Thailand's largest banks recapitalized. He spoke to Singapore Bureau Chief Michael Shari on May 6 at the bank's office in Bangkok. Note: This is an extended, online-only version of the interview that appears in the May 24, 1999, issue of Business Week. Q: Does your royal status make it easier for you to air frank views? A: In the royal family you do what you wish. So you have to air frank views.... It's the way we were brought up. Q: In your opinion, what went wrong with the Thai economy? A: Basically, the simple word is governance. Our parliamentary system became very much more first-past-the-post rather than best-past-the-post. So Parliament, which formulates the Cabinet, basically degenerated into a bit of a free-for-all. They had no checks and balances, so they made bad appointments. And so the government and the civil service degenerated. We started changing rules to accommodate the newfound wealth. Q: What did that mean for business? A: If you had a good name for a project, a big one that might be helpful for the country, you got it immediately: roads, power, steel, petrochemicals, all infrastructure projects. All you needed was a name and a little cash. Seven steel plants were given permission when we only needed one, and one was [still] too big.... Good companies couldn't survive. Good people couldn't survive. This is our problem now. Q: Do you feel it's your job to shape people's opinions? A: Absolutely. Otherwise I wouldn't even talk to the press. I would just go and [turn off] the lights. Q: What message do you want to get across? A: I'm trying to tell them that our problem is not one of being a less-developed economy that therefore cannot compete. Our problem is, our economy is quite developed, and we don't have the rules of a developed economy. We have the rules of a less-developed economy, which needs more governance, more structure. Q: How do you try to shape people's opinions? A: I'm very technical. People know that. I do a lot of homework. I show them data.... And before I do that I watch whether they would even want to listen. Q: What do you tell Thais who blame foreign speculators for their problems? A: I don't think foreigners did anything except to be fooled by us into putting in a lot of money. In that sense they contributed a lot. They made our folly could go on to such a big extent. And those that didn't partake in the foolhardiness came in and bought up the cheap stuff. My only complaint so far is that the Thai people who stayed rich have not yet come out to buy the cheap stuff.... We need some foreign money. My job is to make sure that they only buy up what is actually really worthwhile. Q: What do you think of the IMF's tight-money polices? A: The only question I have about the IMF is why did they keep interest rates up so high for so long. I even asked them. They didn't seem to have a decent answer.... That made the recession a bit deeper than it might have been. But nothing is perfect. Q: When do you plan to repay Thailand's $17 billion debt to the IMF? A: That's very much a political question. We probably have the ability to do it now. But unfortunately, we don't have the legal structure to do it. We have our own laws, which were written 56 years ago for a little poor country and therefore don't allow us to do many things. That includes paying the IMF.... And unless we manage to change that and make full use of our resources while having proper control and sanctions, we can't play around with paying off the IMF. Q: Are you changing the Bank of Thailand's procedures? A: Totally. Previously, our procedures were informal. You'd just chat, and you'd do things after you chat. Now it's all totally technical. We have money-market meetings twice a week, something like 55 charts, a lot of research, a flexible inflation targeting model that is rudimentary but is now running. We are actually changing the structure of the economy. We just brought down the reserve requirements from 2% to 1% to make the cost of the financial system lower for the private sector. Q: You have also substantially lowered interest rates. Are you planning to lower them further? A: The recovery seems to be working. We don't want to go right up and right down, bouncing like a rubber ball. The trick is to keep it pretty steady. Q: Some people complain that the Thai baht should be weaker. A: If they're right, it will be. It's floating freely. Q: How do want Thai banks to rebuild themselves? A: Hopefully, professionally. My goal is to get them to compete. My problem is that some of them are going to lose. I see them doing great things, but I fear they're way behind the world. It's no longer a controlled market where we make sure the worst ones survive and the best ones don't have to try too hard. That was decided very early on when I came here. Q: How are you making banks more competitive? A: When one banker wanted to introduce Internet [banking], we asked him not to talk to the other banks. That was the very first time that the central bank requested that they don't cooperate with each other, that they should compete. And two weeks ago, we allowed them to open branches at any time and close them at any time. Just tell us 30 days in advance. That allows, firstly, a much higher rate of return on assets and, secondly, allows them to compete. You can go home early, but you can't make much money, and the guy who's willing to work late is gonna make a lot of money. The thing is, can I, within 5 to 10 years, set up a system of supervision to recognize banks that might not be competitive and take action to make sure they don't fail in an uncontrollable way? Q: Do you want to encourage bank mergers? A: Well, we will not encourage it. We will allow it. We are drafting a new law that will be passed probably by the end of the year. The old law says nobody may own more than 5% of a bank share, which makes it impossible for anybody to take over anybody unless they go bankrupt. The new will say, You may own more than 5% of a bank share, if what? It's the "if what?" that we're working on. Q: What's the best way to dispose of bad debt? A: There would have been many ways of doing it, but the end result is that if you don't have a lot of bidders you ain't gonna get a lot of money. A lot of it has been sold. There's only real estate left. And then we'll have to make plans to finance the rest of the losses. There are very few upside gains left. The upside gain will come basically because the banks will be better managed and the economy is going to be better in five years. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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