Wednesday, Nov 4, 2009

In December 1997, new finance minister Tarrin Nimmanahaeminda appointed a commission, chaired by former central bank governor Nukul Prachuabmoh, to study what had gone wrong with the Bank of Thailand’s management of the baht crisis. The Nukul Commission also took time to study the Bangkok Bank of Commerce fiasco.

The nine-page report was inadequate in its investigation into the BBC affair. The commission squarely put the blame on Vijit Supinit, the Bank of Thailand governor, for failing to pre-empt the looming crisis at the bank through drastic measures.

It pointed out that BBC’s capital should have been written down first before the government stepped in with bail-out money to shore up confidence and put the bank back on a normal footing.

As of April 30, 1991, BBC carried about Bt18.2 billion in problem loans on its books, amounting to 26.73 per cent of its total lending. The situation was already very critical at that time, warranting central bank intervention. Yet nothing was done.

By March 31, 1993, BBC’s problem loans had risen to Bt38.5 billion, equivalent to 39.57 per cent of assets. President Krirk-kiat Jalichandra and his financial adviser, Rakesh Saxena, continued to lead BBC into the world of high finance with takeovers and stock market speculation.

The central bank’s banking supervisors reported on April 18, 1995 that BBC was reckless in its lending. Collateral was assessed at overvaluations that caused damage to the bank. The central bank said Saxena and other members of management took overdraft loans from the bank without guarantees or contractual agreements. Management also approved loans beyond its authority.

The central bank ordered Saxena not to get involved in the bank again. It also ordered the bank to raise capital by Bt3 billion by June 1995 and Bt3.7 billion by 1996. Recapitalisation at BBC went at a slow pace. But in March 1996, the Financial Institutions Development Fund and the Government Savings Bank bought 34.96 per cent and 2.39 per cent of BBC respectively during a capital-raising drive.

BBC would not see the light of day. Between May 8-10, 1996, Suthep Thuagsuban, a key member of the Democrat Party, launched a no-confidence debate by exposing the BBC scandal, in which the politicians belonging to the Group of 16 benefited from almost free loans.
Worthless land plots were used as collateral to withdraw money out of the bank to distribute to the politicians. The bank’s status was like walking zombie.

Public panic ensued, with heavy runs on banks. On instructions from prime minister Banharn Silapa-archa, finance minister Surakiart Sathirathai, on May 17, 1996, ordered banking authorities to take over the bank. On June 6, 1996, Krirk-kiat was removed, ending his almost four years of presidency at the bank.

The central bank lodged some 20 criminal cases against Krirk-kiat.
By that time Saxena was already laughing all the way to Europe before seeking a stronghold in Vancouver to fight any attempt to extradite him back to Thailand.

Indeed, Vijit’s role as a central banker was highly questionable. He was too close to Krirk-kiat. One of The Nation’s bloggers, who has an insider view of the BBC affair, gave me a brief account. He wrote: 

“The BOT governor at the time, during his official visit to Burma with the prime minister, called Saxena up to tell him to leave immediately because there was a warrant for his arrest.

“Saxena was escorted by Krirk-kiat’s cousin, who helped load two suitcases filled with dollars onto Saxena’s private plane. And now after 14 years Saxena is back.

“Saxena’s main contact with the Group of 16 came about from Suchart Tancharoen, as his then father-in-law had a close business relationship with Suchart’s father, when they were both in the logging business.
“Suchart then introduced Saxena to Newin Chidchob and the other members of the Group of 16, including Chattawat Muttamara, who was the go-between.

“A member of the Group of 16 was also involved with facilitating the land ownership papers for Saxena through the Lands Department, as well as enabling the SPL-3 land usage deeds to be NS3K deeds as in the case of Khao Yai Country Club.”

Throughout the Nukul Commission’s report, Vijit alone was blamed for the BBC scandal. It did not take into consideration the political atmosphere of the time.

It is true that Vijit tried to protect Krirk-kiat at all cost. But the involvement of the politicians, from the Group of 16 and top members of the Banharn administration, had worsened the situation at the bank.
If Vijit failed to serve the politicians, he could be removed. But he was removed anyway as one of the scapegoats, along with Saxena, while the politicians who benefited from the loan scandal at BBC are walking free.

If BBC had been appropriately handled with a bail-out of Bt100 billion, taxpayers would not have had to pay Bt200 billion for its total damage after its closure with almost 100-per-cent non-performing loans.
The collapse of BBC triggered a run on the Thai financial system and an attack on the baht, whose management again was flawed. The financial crisis of 1997 and 1998 saw its seeds in the mismanagement of BBC in particular and the macroeconomic imbalances in general of the 1990s.
We should have learnt the lesson.
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