FINANCE

TAMC confounds its critics

Darana Chudasri

The property sector was one of hardest-hit victims of the 1997 economic crisi, leaving a huge pile of debts to be restructured. The TAMC was thus set up to accelerate the process of deby restructuring under a single entity armed with extraordinary powers to force borrowers to the negotiating table.

CALL IT Thai Rak Thai's one-trillion-baht wager, that a centralised, state agency could prove more efficient in restructuring non-performing loans than banks operating under market forces.

It was a bet that the Democrats refused to take, having abandoned a similar plan in the midst of the economic crisis as too risky, too inefficient and potentially too expensive for the public purse.

Nearly three years after the creation of the Thai Asset Management Corp, it appears clear that fears were overblown.

By the end of 2003, 781 billion baht worth of debt had been restructured by the TAMC, representing 94% of total bad debt transferred from state-owned and private banks.

Of the 112,500 borrowers originally transferred, 110,000 came from state banks such as Krung Thai Bank and Siam City Bank. Participation by private banks was relatively limited, due to tight screening criteria and the belief by many banks that potentially higher upside was available by negotiating on their own.

The TAMC was established with two broad mandates. First was to accelerate the process of debt restructuring under a single entity armed with extraordinary powers to force borrowers to the negotiating table. It had become increasingly apparent that the 1997 Bankruptcy Act was rife with loopholes that constrained progress toward settlement, with both creditors and borrowers alike arguing that the law provided insufficient safeguards to protect their interests.

By consolidating claims from different creditors, authorities hoped that the TAMC would be able to cut the time required to draft and implement restructuring plans.

A second major objective behind the TAMC's creation was to foster industrial reform. Most analysts agree that the 1997 crisis stemmed from an overinvestment boom in the 1990s by Thai companies. Funded by foreign loans with insufficient safeguards for risk, the corporate landscape was awash with excess production capacity that depressed margins and the competitiveness of many industrial sectors.

Overall, most analysts agree that the TAMC has proven many previous critics wrong. Restructuring has generally turned a profit for the state, thanks in large part to the general recovery of the economy and asset prices over the past years as well as the low prices paid by the agency during the original transfers.

One criticism that has dogged the TAMC has centred on allegations of poor transparency and political interference and lobbying in restructuring deals. Opposition politicians have taken the agency to task for the large debt reductions and favourable terms offered to some borrowers, including companies related to prominent figures within the Thai Rak Thai party.

Hopes that the agency would serve as a major force for industrial reform have also fallen short, with only a handful of mergers made in the steel, paper and other sectors accomplished to date.