Thursday, September 25, 2008

Thai Contingency plan ready in case US crisis gets worse

Economic policymakers insist Thai financial markets are relatively unaffected by the turmoil on Wall Street.

The Finance Ministry held talks with other institutions yesterday about contingency plans to help mitigate losses to the local market if the crisis in the United States worsens.

Bank of Thailand governor Tarisa Watanagase said the central bank was prepared to take action to ease any stress in the local market as a result of the problems in the US.

The meeting came as the US Congress continued deliberations yesterday on the US government's unprecedented US$700 billion (23.8 trillion baht) plan to buy up distressed assets held by the banking sector.

Paul Kanjorski, the chairman of the House of Representatives subcommittee on capital markets, a Democrat from Pennsylvania, said the bailout bill was "almost an accomplished fact", and would include warrants, mortgage relief for homeowners and curbs on executive compensation.

President George W Bush yesterday was to hold an emergency meeting with Congressional leaders as well as with Democratic presidential candidate Barack Obama and his Republican rival, John McCain, to discuss the package.

US lawmakers hope to approve the bailout within the next several days to help calm financial markets, which have remained highly volatile following this month's bankruptcy of Lehman Brothers and government intervention in AIG, the world's largest insurer.

Permanent secretary for finance Suparut Kawutul said there had been a limited impact from the US financial crisis on the local banking system, equities market and insurance sector.

The Finance Ministry was monitoring developments closely, and would prepare contingency plans for the local financial system, he said.

Mrs Tarisa said the central bank could introduce a rescue package to inject liquidity and tackle bad assets in the Thai banking system if necessary.

"The present developments in other countries are a good example. The central bank might introduce a rescue package if necessary. We are ready if there is a need to increase liquidity in the system." Regulators took pains to point out that local institutions' exposure to overseas assets was limited. The banking system currently has $3.6 billion (122 billion baht) worth of external credit compared with eight trillion baht worth of total liabilities.

Chantra Purnariksha, secretary-general of the Office of the Insurance Commission, said the local insurance sector had been relatively unaffected.

Policy redemptions amounted to only 20 to 30 per day since it emerged earlier this month that AIG was facing a severe liquidity problem, Mrs Chantra said.

AIA, the local unit of AIG and the country's largest life insurer, had capital funds 10 times the regulatory minimum, she said, and had around 90% of its investment portfolio in the local market.

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