Last week's earthquake has provided Thais with two valuable lessons. First, Thailand has no national disaster management plan. No government agency seems to have had carefully thought-out plans and procedures to manage the situation. All measures were carried out on an ad-hoc basis. Worse, there appears to be no coordination among various agencies. Thais were left to rely on their own two feet as thousands of Bangkokians had no choice but to walk for hours to their homes when the mass transit railways were shutdown.
The more valuable lesson -- the second lesson -- is that people should listen more to fortune tellers because they were more effective than government agencies. Most made accurate predictions about the earthquake. One was particularly amazing. At the end of last year, she predicted there would be an earthquake in March 2025, centred in Myanmar, sending shock waves to Bangkok which would cause buildings to collapse.
Since fortune tellers are reliable sources of information, it might be worth listening to their other predictions. They unanimously predicted that an earthquake would not be the only natural disaster in 2025, and there would also be water-related disasters like a great flood or tsunami.
I just read an article by a seismologist explaining the recent Myanmar quake started from a fault line in Iceland. From his analysis, the next big one will be in Sumatra. If that should happen, predictions about a great tsunami might not be far-fetched.
More relevant, all fortune tellers predicted a disastrous Thai economy for 2025. Many bankruptcies and mass unemployment are to be expected. As an economist, I can second that as January-February's economic data confirm such predictions.
During the first two-months of the year, commercial banks recalled 86 billion baht in loans from the business sector and 68 billion baht in loans from the household sector.
No wonder, the manufacturing production index contracted 3.9% and the private consumption index dropped 1.2% in February. Businesses and consumers just had less money to spend. At 59% capacity usage and tight liquidity, it will not be long before factories shut down and make massive lay-offs.
By the way, one could not fault the Bank of Thailand (BoT) for allowing tight liquidity, even the government loves to blame it for that. The central bank did everything it could by increasing money supply by 3.1%. Unfortunately, commercial banks are holding the liquidity and not releasing it to the business and household sectors.
Commercial banks make money when expanding loans and make losses when accepting deposits. The only reason why banks hold tight to the liquidity is fear of loan losses (non-performing loans or NPLs).
The government naively thinks that a key obstacle is Thai borrowers being "blacklisted" in the National Credit Bureau (NCB)'s credit report. Once the blacklist is removed, banks would be happy to extend new loans. Only people without banking knowledge would think like that. It is like thinking that if one wears dark glasses, one can tell that the person is blind. Just wait until that person bumps into things, then everybody in this world will know the person is blind as a bat.
Because of the government's misunderstanding (or pretence to misunderstand), the government intends to buy NPL debts from commercial banks, hoping that financial institutions will be as naive as the government and believe that these ex-NPL customers are worthy of new credit.
There is no such thing as a "blacklist". The NCB reports credit history which includes current payments, late payments, plus status of debt under restructuring (if it exists). If the government should buy out the NPLs, the NCB could do one of these things (1) remove the debtor's credit history as if the debtor had never borrowed in their life or (2) tagging the debtor's credit history that the debt has been bought by the government. With either option, the debtor is most unlikely to receive new loans from the banks anytime soon.
The issue is not the NCB's report, the issue is the "ability to pay". Parliament could pass a law to outlaw the NCB and I can assure readers that banks will not rush to issue new loans. On the contrary, banks would be more conservative as they would not be able to perform credit history checks.
The clear evidence is that commercial banks recall loans from the business sector more than from the household sector despite the fact that the NCB never keeps credit reports on business clients. Banks consider the worthiness of a debtor by their ability to pay, not through a credit report.
Here is my recommendation for an "effective" national debt restructuring scheme based on borrower's "ability to pay". There will be no silly tweaking of credit reports nor rewarding NPL debtors with principal reductions.
My recommendations will be strictly based on four principles: (1) The scheme covers the entire household debt of 14.7 trillion baht; (2) All debts are considered good and need to be serviced in full. There would be no haircut of any kind; (3) The scheme should cause no undue financial damage to banks and create no burden on tax payers. Therefore, no government budget support is necessary; and (4) There is no requirement for cash financing. Transactions would be on a non-cash basis.
Too good to be true? Only dreamers would dream of a scheme like this? Please do not be hasty to judge, but consider the scheme with an open mind. I actually have created a spreadsheet, filled with actual data, to simulate whether the scheme is implementable.
If I show the spreadsheet in the article, it would look like a research paper. I will therefore give a rough representation of the scheme.
The first step is to separate the existing 14.7 trillion baht of household debt into three groups. The first would consist of debt with collateral such as housing and automobiles. The first group would contain household debt of 7.3 trillion baht or about 40% of GDP. The 40% of GDP is theoretically the "ability of pay" by Thai debtors at present, not 90% of GDP as on the book. Debt in this group is left with the original creditors, with the original conditions and is required to be serviced regularly. If there is defaulting, legal action would be taken and the debtor's collateral would be claimed. Politicians might not be pleased as they cannot offer haircuts and get favour from voters.
The ability to pay comes from the fact that the scheme has reduced monthly total debt payments by more than half through trough payment holidays of the other two debt groups.
The second step is separating the remaining household debt into two funds. The first consists of 4.9 trillion baht of personal loans. The second consists of 2.5 trillion baht of credit card and a portion of personal loans. Payment periods would be extended to 8 and 20 years with 2 or 3 years of payment holidays.
The big bonanza for these two funds is high consumer loan interest rates would be reduced to government bond yields plus a 1% management fee. My scheme even has a mechanism to repair re-entered NPLs.
That is the best I can offer as a freelance economist, but my scheme is guaranteed to be more effective than the feeble scheme of "You fight, We help" or the silly concept of buying up NPLs.
