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November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

NOVEMBER 12, 1999 VOL. 25 NO. 45

The Politics of a Debacle
More fallout from the Krung Thai Bank affair
By ROGER MITTON Bangkok

Let's cut to the chase. The Thai government is not going to fall because of the Krung Thai Bank fiasco. But PM Chuan Leekpai's Democrat Party will likely lose support in next year's general elections. After all, it affects to practice transparency, honesty and professional competence - all qualities besmirched by revelations of the state-owned bank's dubious lending procedures. Making matters worse, the bank's boss during the tainted era was Sirin Nimmanhaeminda, younger brother of Finance Minister Tarrin Nimmanhaeminda. "The big problem concerns Tarrin's brother," says Democrat MP Pirapan Salirathavibhaga. "The press and the opposition are trying to make out that he is involved in protecting his brother. It is not true." Maybe, but perception is everything in politics - and right now, it is not running in Tarrin's favor.

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Especially after a government-appointed panel headed by former central bank governor Kamchorn Sathirakul found no evidence of irregularities, contradicting the findings of international auditors PricewaterhouseCoopers. On Nov. 2, a defensive Tarrin seemed to distance himself from the government report. "It is wrong to conclude that a whitewash has been made because of my brother," he told reporters. "The Kamchorn study only looked at the bank's standards and credit-approval system. They had no role in looking at non-performing loans, or who was responsible for the damage at the bank. The public has misunderstood as the probe is not over yet."

In Thai politics, things blow white hot for a time and then die out as they are superseded by another sensational issue. But this one involving a bank that is being propped up by some $5 billion in taxpayers' money may have sturdier legs. The Krung Thai affair has led to soul-searching by Chuan's team, which has only belatedly woken up to the magnitude of the debacle. One of the PM's economic advisers, former finance minister and Democrat MP Boonchu Rojanastien, has berated the finance ministry's handling of Krung Thai's loan problems. The leaders of Chuan's coalition partners have also waded in and publicly expressed concern - essentially covering themselves against collateral blame should the government fall.

Thankfully for the Democrats, the Krung Thai affair has not elicited widespread attention among the grassroots - in part because it involves fiscal complexities that are hard for ordinary people to grasp. A straightforward scam, like the 1995 land scandal that brought down Chuan's first government, is easier to explain. Still, some analysts are recalling 1995 and suggesting that Chuan's second term could end on a similar sour note if he is not careful. His opponents have plenty of ammunition. People were stunned in August when elements of the confidential PricewaterhouseCooper review were leaked. According to press reports, the auditors found that 84% of Krung Thai's loans were not being serviced, much higher than the bank's own figure of 59%.

Such a staggeringly high figure implied negligence in assessing the credibility of borrowers. In fact, the 84% refers only to big corporate clients. Including other accounts, the proportion of non-performing loans is 66.5%. And the PricewaterhouseCoopers' findings are based on random sampling (the survey represented just 42% of Krung Thai's loan portfolio as of Nov. 30, 1998) - the reason why PricewaterhouseCoopers recommended a second audit. Instead of making the report public, Tarrin fired Krung Thai chairman Mechai Viravaidya, whose mutual antipathy to Sirin and Tarrin is an open secret, and appointed a new board. The finance ministry also set up the "neutral" Kamchorn committee.

Politically, the dispute over bad-loan percentages and such arcana is irrelevant. The red meat of the Krung Thai affair is that Sirin is Tarrin's brother. The finance minister has always been aware of the danger. During his first term at finance in the early 1990s, he assigned deputy minister Trairong Suwanakiri to watch over the bank. In his second term, he gave the job to another deputy Pisit Leeahtam. Recalls Trairong: "He put Krung Thai under my control, which is not usual for the minister. I asked him why. Tarrin said: 'I am so afraid because Sirin is my younger brother. The people might suspect I might do a favor for him.'"

The opposition aims to give Tarrin a hard time in a no-confidence debate expected toward the end of this year. They don't have the numbers to win, but they can tarnish the government. And perhaps bury Tarrin's hopes of succeeding Chuan. Although lauded internationally, Tarrin is less liked at home. "Perhaps because he was raised in a rich family, he just doesn't know how to sit down with the grassroots, talk, eat with his fingers," says Trairong. Investors would be sad to see Tarrin go. Says one banker: "Five, 10, 15 years from now, people will say Tarrin and Chuan saved this country. It would be a shame to see Tarrin get pushed out at the tail-end of that repair work." But then that's politics.

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