Interest Rates rise dramatically

[GWR]

It appears bank deposit and lending interest rates have gone up dramatically over night, without warning. Can we ask those of a more 'economics' background to give us a few simple clues as to what is going on? Is the Bank of Thailand firmly under Thaksin control? Is this an effort by some elite to lever Thaksin out? Or is it an attempt by Thaksin to shoulder a burden on the rural poor so they will blame the opposition?

[dingo]

there is a tight relationship between interest rates (nominal),
inflation, and foreign exchange rates. inflation is inflation,
kind of hard to manipulate (except the reporting of it). the
thai finance officials seem to have been keeping a range of
40B/$USD. in view of recent, and projected continuing, rising
of rates by central banks such as the ECB and the US federal
reserve, the thai central bank is left without much options
in order to meet their exchange rate band.

trying to do this with currency reserves was one of the mistakes
of the 1997 fiscal crisis.

--dingo

[mdechgan]

Interst rates rising is a way for the government to control the country's monetary policy. Monetary policy is the government's tool in controlling the country's business activities by regulating the supply of money and credit.

1) Increase taxes, people tend to save money more, people tend to borrow and spend less, less investments are made and less business acivity.
e.g. Buying a car with 0% interest for 5 years. People will borrow and buy.

2) Reduce taxes, people tend to save less, borrow more, spend more, more investments and more business activity.
e.g. Buying a car with 20% interest per year. No one will loan and buy the car. They will wait and save and pay cash.

Problem is inflation. More money lend out, more inflation. Money becomes lower in value since more money is lent and at low interest rates. Now stuff will cost more. This was a real problem pre 1997. People were borrowing money by the loads, and using the money to build buildings nobody needed.

Increasing the interest rates means the economy now is overheating. People are spending too much and this needs to be stopped. So increase the interest rates and people will borrow and spend less. It will also make people reduce their debt. You will see all those advertisements with 0%-1% interest rates dissappear.

But one must also consider the government's fiscal policy or taxing and spending policy. More taxes less people spend, more the government spends more money pumped into the economy and vice versa.

I don't think these policies will have an impact on the country's foreign exchange rate since the rates are relative to other countries economies ever since the baht was floated. It takes time for these policies' impact to be realised, not overnight.

I had a converstation with my friend ex-Bank of Thailand governor Vijit. The BOT had long term goals for the country because of the lag of monetary and fiscal policy it takes years sometime up to 10 years. While the government only has short term goals like 4 years. He says ever since Thaksin was in power, he tried to influence and control the BOT's policies to his views even by pressuring the BOT governors and board with his own finance minister and selection of BOT people since the last BOT governor was at odds with Thaksin much of the time.

I think interest rates were pressured into going up because ever since the sale of AIS Thaksin has a lot of money (cash) stored in the banks. Especially SCB. More interest, even more money for Thaksin!

[GWR]

Interesting answers!

Mdechgan seems to be indicating that Thaksin still has a firm grasp on BOT; although you both seem to be saying this was an inevitable move after the '97 fiasco.

Could it be that Thaksin bowed to the inevitable because he saw it as a means to strengthen his piggy bank and blame it on his opponents at the same time? I may have read this wrong, but it seems to me that Thaksin has been releasing some poorer people from their debt burdens to state banks such at TawKawSaw (Govt Farmer's Co-operative Bank) in the hope that they will borrow more to spend on things that make him profit and keep him in power. They will presumably be affected by these interest rates. But Thaksin (forewarned) will be able to step in before the criticism starts and blame it on those who are rocking the boat.

One person who is more knowledgable than myself suggested that some of Thailand's elite might be using this interest rate hikeas further leverage on the upstart Thaksin. My point here (and it may be completely wrong!) is that his firm control over BOT makes it more likely that such an adjustment was inevitable; but that it can be bent to fit his immediate political and financial needs. Every extra baht will help an election campaign that is inevitably based on monetary coertion rather than subtle political debate. It is believed by some that he is paying some small parties to stand against him.

[dingo]

I don't think these policies will have an impact on the country's foreign exchange rate since the rates are relative to other countries economies ever since the baht was floated. It takes time for these policies' impact to be realised, not overnight.

I had a converstation with my friend ex-Bank of Thailand governor Vijit. The BOT had long term goals for the country because of the lag of monetary and fiscal policy it takes years sometime up to 10 years. While the government only has short term goals like 4 years. He says ever since Thaksin was in power, he tried to influence and control the BOT's policies to his views even by pressuring the BOT governors and board with his own finance minister and selection of BOT people since the last BOT governor was at odds with Thaksin much of the time.

I think interest rates were pressured into going up because ever since the sale of AIS Thaksin has a lot of money (cash) stored in the banks. Especially SCB. More interest, even more money for Thaksin!

don't have any real issues with the first part of your explanation,
but these last two points are questionable.

there are clear relationships between inflation (actual and expected),
interest rates (real and nominal), and foreign exchange (spot and
futures markets) in open economies. i do agree that there can be lags
in between changes in monetary policy and actual effects - but for the
most part changes in monetary policy changes that create issues are
those that are "unexpected". the degree and lenght of the lag until
equilibrium is reached is dependent upon the magnitude of the suprise.

regardless, if you are talking about 10 years, it would be very difficult
to correlate what is happening today to what was done 10 years ago
without considering the greater influence of what happened over the
more recent past.

if you are really interested in these interactions, google for topics
such as "uncovered interest rate parity", "covered interest rate parity"
"purchasing power parity".

regarding Thaksin and his influence over the banks to earn a few more
percentage points interest.... This one is a bit difficult to swallow.
first, just by basic laws of supply and demand, dumping all that money
into the banking system would have the effect of lowering interest
rates - not raising them. second, consider the myriad of potential
ways in what you are suggesting can effect bank financial performance.
i can't think of one good one. so any bankmanager/president who
would buy into this scheme would be putting himself and the bank at
risk (and probably costing more than the net benefit to thaksin would
amount to).

regards,

--dingo

[Scuba22]

The relationships between interest rates, inflation, foreign exchange rates and growth are part of why quick-fix schemes like the type Thaksin keeps trying to sell are difficult to make work in a real economy.

Let's say you inject a pile of cash into the economy through cheap or free loans, in effect lowering the interest rate. The extra money can either be invested in productive items like education or a shoe factory; or it can be blown on stupid projects or buying sports cars. The cheaper the loans (ie, the lower the interest rate), the more likely it is that the money will be badly invested, because the cost of investment (the interest rate) is going down. Indeed the mismatch between low interest loans from foreign countries going into high risk investments in Thailand was a major part of the 1997 crisis.

Problem is, if you inject more money into an economy than it can productively use, the bad projects and excessive consumption causes prices to go up - hence inflation. When inflation starts going up, any cash returns you make from investing starts going down, because the cash isn't worth as much (in the jargon, you need to use a bigger discount rate to calculate your NPVs). Inflation also eats away at the value of your savings, so it makes more sense to buy stuff like gold or land (inflation hedges) rather than save or invest.

The impact on foreign exchange is a little different. Suppose you could borrow money in dollars at 5% interest and deposit the dollars in a Thai bank for 10% interest. This would be a money machine that can't be sustained (you can try as the BoT did with reserves and collapse!) , and the way it gets corrected is through the foreign exchange rate - basically if you can borrow 100 dollars at 5% and invest in Baht at 10%, the baht would devalue by 2-times to make your return exactly the same. Looked at the other way, if you want to increase the value of your currency, you can raise the interest rate so that more money flows your way. But that's bad for exports, which would like a low value currency so that prices are cheap.

OK, with all that in mind, according to the Economist (4 March), consumer prices (one measure of inflation) have risen 5.6% in thailand since last year as of Feb. Compare this to 1.8% in Singapore, 4.0% in the US, 2.3% in the EU, 1.9% in China, 2.3% in South Korea, and 6.7% in the Philippines - and you see that Thailand is definitely on the high end. At the same time, short term interest rates in Thailand were 4.8% vs. 3.38% in Singapore, 4.55% in the US, 2.67% in the EU, 2.2% in China, 4.26% in South Korea, and 7.38% in the Philippines. These are simple numbers, but they do point to Thailand being a relatively high-inflation low-interest rate economy at the moment, which looks like an overheating economy. Yet at only 4.7% GDP growth, that heat doesn't seem to be going anywhere.

Raising interest rates can't do good things for economic growth. Sure, people will get a few extra baht for their savings, but that comes directly through borrowing costs for business growth. Plus, with household debt at historically high levels, paying for that debt will become more expensive, leaving less money to buy increasingly pricey goods.

None of this is economic rocket science - it's pretty much what any reasonable economist should have predicted by looking at TRT's economic platform. This is precisely why it should have been clear from the beginning that Thaksin is more interested in power than development. If not, the only way you can explain this situation is incompetence, and when it comes to making money for himself, he's definitely competent.

I haven't heard that Thaksin or TRT have had any particularly heavy impact on BoT decisions, certainly not to the extent that it has taken over the Senate and other bodies meant to be independent. Perhaps I'm wrong about this, but I was under the impression that the BoT has pretty much maintained a level of independence. I think the major banks would be pretty irate if Thaksin tried to use monetary policy to achieve his political ends. In fact, my understanding was that the rift between Sondhi and Thaksin had something to do with Thaksin bowing to the BoT's demand to remove the president of KTB - but that's just rumor.

My question is, will this have enough impact quickly enough to affect the election?

Cheers,

Scuba22

[dingo]

I haven't heard that Thaksin or TRT have had any particularly heavy impact on BoT decisions, certainly not to the extent that it has taken over the Senate and other bodies meant to be independent. Perhaps I'm wrong about this, but I was under the impression that the BoT has pretty much maintained a level of independence. I think the major banks would be pretty irate if Thaksin tried to use monetary policy to achieve his political ends. In fact, my understanding was that the rift between Sondhi and Thaksin had something to do with Thaksin bowing to the BoT's demand to remove the president of KTB - but that's just rumor.
Scuba22

There was a little spat between the BOT and Thaksin over reserve
requirements late last year. The BOT governor stood his ground.
It appears the BOT is one of the few institutions that has done
that.

The raise in interest rates is inevitable. The economy here in many ways
integrated into the economy of the rest of the world - and as as such
doesn't have much choice. Of course, a rising interest rate environment
might not make things so easy for the next administration - be it Thaksin
or whoever else.

dingo

[Scuba22]

I'm getting fairly out of my depth here, so apologies if I get stuff wrong, but I was under the impression that reserve requirements were more or less set by international agreements under Basel-2 using some kind of fairly complicated risk-adjusted capital rating scheme. I thought the whole point of international agreements like that was to prevent national governments from politically interfering in banking regulation, or at least make it very transparent when they did.

If that's the case, then how could Thaksin even consider fudging reserve requirements? Wouldn't that be immediately evident and sink Thailand's credibility regarding responsible financial sector management?

Or am I missing something?

To be honest, how credit scoring works here baffles me. I've never seen the process firsthand, but based on the quality of financial and risk analysis I've seen in other areas, I really wonder what's happening in all these microlending operations. Accurately measuring risk is hardly an exact science in the best of situations; when you're dealing with a mess of totally unknown variables and thousands of tiny scale borrowers, it's got to be impossible. I wonder if it's just not done at all.

Cheers,

Scuba22

PS - Oh, it's also great to see an institution that stood its ground and remained independent. Just shows that it can be done, makes you wonder what happened to everyone elses' balls.

[mdechgan]

...first, just by basic laws of supply and demand, dumping all that money
into the banking system would have the effect of lowering interest
rates - not raising them.
regards,

--dingo

Raising the interest rate is a very good idea. Especially now.
We notice all of those new cars, houses being built, and credit cards being given all over the place. Personal debt in Thailand is at an all time high! Debt is not good. Now imagine if all those people that borrowed for their houses, cars and cell phones stopped making their payments?

I am 100% sure Mr. Thaksin didn't put his eggs all in one basket. So 70+ billion baht is not sitting solely in Thai banks. Because Bangkok Bank and SCB had to lend Bt26 billion to Cypress holdings to fund the deal, the money didn't actually leave or was dumped into the sytem, it just changed hands. Also some of the Shin Corp's shares weren't actually owned by Thai shareholders in Thailand (aka Ample rich) so some of the money wasn't actually received by Thai institutions from Singapore. So I don't think the amount of the cash sale should influence the national interest rate alone. The M1+M2 indicators for Thailand in Jan 2006 is almost 9 TRILLION baht. If interest rates are gonna go up there gonna go up! 70+billion baht would barely make a dent.

There is no confirmation that the money is in the Thai banks. Actually there is no confirmation where the money is or went. It could be offshore but, you need BOT approval to transfer over $5m USD overseas. Anyone have ideas where the money went?

I read an article that he was earning $100,000 USD per day on interest alone after the deal.

[Scuba22]

I read an article that he was earning $100,000 USD per day on interest alone after the deal.

For us mere mortals, it's hard to fully realize the magnitude of "billions" and "trillions". One great description I heard once was: "A thousand seconds is 17 minutes; a million seconds is 11 days; a billion seconds is 32 years, and a trillion seconds is 32,000 years." These are some heavy orders of magnitude.

US$1.9 billion gets you US$100,000/day at less then 2% per year, uncompounded. That's around the basic deposit rate, no? You'd think all that cash would be sitting in a money market at least, where it could easily double that - Treasuries are yielding around 4% these days aren't they?

It's really something seeing arcane transaction structures being analyzed in mass newspapers. I wonder if people realize that this sort of thing happens all the time and hardly ever sees this kind of publicity.

Overall, I think it would be great if people paid more attention to some of the financial shenanigans that go on between i-bankers in M&A deals. What good are disclosure laws if no one pays attention to what's being disclosed?

Cheers,

Scuba22

[2 Cents]

Let me throw out some thoughts.

I kind of agree with Dingo and Scuba22 that authority tends to raise interest rate to keep pace with the rest of the world, and control inflation.

Inflation has been staying in the rage of 5-6% for more than half a year, and has not showed any sign of slowing down. So even if the BOT is independent from any political influence, it will want to raise interest in an effort to control inflation.

If, however, Taksin has influence over BOT, rising interest rate may not benefit him as much as it harms Thai economy. This high interest will sure have quite an impact on the economy with all the things he has done with his policies and the current deficits.

So, if Taksin is smart, he may not want to rise interest so that he can gain few more (million) Baht. He may, however, raise interest to open the door for him to exit. After this, he can pretend to be a hero and resign, and let the next government dealing with all the mess that are resulted from his policies.

He can later come back and criticize the performance of that government, pointing out that the economy didn’t do as well as when he was PM. He will take all the credit for those years that GDP is high, and blame the other government for the time that the economy suffers the consequence of his policies. It may not take too long and he may actually gain a lot more believers. Then he can come back and make 100 billion more :eek:

Well, just another conspiracy theory :D , but I think it’s more of an inflation fighting than anything.

[dingo]

I'm getting fairly out of my depth here, so apologies if I get stuff wrong, but I was under the impression that reserve requirements were more or less set by international agreements under Basel-2 using some kind of fairly complicated risk-adjusted capital rating scheme. I thought the whole point of international agreements like that was to prevent national governments from politically interfering in banking regulation, or at least make it very transparent when they did.


a misquote on my part. i was talking about central bank 'reserves'.
'reserve requirements' for banks, which i think is referred to as 'risk-
adjusted capital' is set by international banking standards such as
basel I and II accords as you mention. my mistake.

in this case, Thaksin wanted the BOT to be more aggressive with
its' monetary policy (if it wasn't already at that point).

To be honest, how credit scoring works here baffles me. I've never seen the process firsthand, but based on the quality of financial and risk analysis I've seen in other areas, I really wonder what's happening in all these microlending operations. Accurately measuring risk is hardly an exact science in the best of situations; when you're dealing with a mess of totally unknown variables and thousands of tiny scale borrowers, it's got to be impossible. I wonder if it's just not done at all.


under the basel II accords, the banks are allowed to use their own 'internal
risk-based models' for doing this. the number that i recently saw was
that 12% of thai home mortages were in default. ouch. almost all
thai home mortages are adjustable and of medium duration (about 10
yrs) just where the largest rate increases are showing up.

PS - Oh, it's also great to see an institution that stood its ground and remained independent. Just shows that it can be done, makes you wonder what happened to everyone elses' balls


the concept of 'having balls' seems to be lost on a lot outside of the
BOT govenor, a reporter (by the name of supinya), an auditor (by the
name of jaruvan) and a few others.

[dingo]

He can later come back and criticize the performance of that government, pointing out that the economy didn’t do as well as when he was PM. He will take all the credit for those years that GDP is high, and blame the other government for the time that the economy suffers the consequence of his policies. It may not take too long and he may actually gain a lot more believers. Then he can come back and make 100 billion more :eek:


I think this is pretty much the central point.

Interest rates are not really up to Thaksin (or whomever else is in
office) over the long term. However, Thaksin came to office during
the lowest interest rate environment the world has ever seen. Low
rates in the US were effectively exported across the world. For
instance feeding booms in China which resulted in increased exports
for Thailand, Japan, and a lot of other countries. Thaksin lit his
own little fires here with domestic consumption.

However, fueling those fires doesnt come without costs. Interest
rates are rising worldwide. The next guy will come in with a stiff
headwind getting things down (and less fuel to throw on the fire)
and Thaksin will feel vindicated.

Even the legacy of Thaksins preformance during the last five years
is somewhat dominated by the 2 years of good economic performance.
if you look at GDP performance 5 years ago (about 5%) and now
(about 5%), without even considering the political divisiveness now
in Thailand. can't really say he has added up to much.

--dingo

[Scuba22]

12% of thai home mortages were in default. ouch.

Holy crap, that's really really scary given the property boom of the past few years. Does this include old pre-1997 mortgages? I assume in Thailand home mortgages are still held by banks, there aren't Freddie Mac/Fannie Mae type stuff is there? No mortgage-backed securities on the open market?

How much bank exposure are we looking at? I'd assume that the big banks have a higher portfolio of corporate debt - are there banks with significant mortgage exposure? Is this going to be another financial crisis?

Any data on what's happening with credit card debt?

Cheers,

Scuba22

[dingo]

not sure if it is pre-1997 or not. i would think so - the banks
seem to not understand how to clear their sheets of npls of
all categories. there are many neglected homes here in my
neighborhood that apparently are for sale by the banks that
hold the mortgage - but for the value of the mortgage plus
unpaid interest. talk about stupid. most of the homes here
are selling for the same prices they did when new 10 years
ago - these may be worth half as much since they require
extensive repairs. not sure what they will be worth in another
10 years when they are still sitting here vacant.

regarding other debts. there are CDO (collateralized debt
obligations) in the thai debt markets. typically these are auto
loans and leases. some personal credit companies have
packeged up their consumer debt also.

i think the issue with bundling up home loans and issuing MBS
(mortgage backed securities) is there doesn't seem to be
anybody who wants to take over foreclosures here.

most of corporate debt financing is still via the banking sector,
so it is bound do dominate.

the red flag issue to me is that very few home mortage loans
are fixed. they may have a fixed period of 5 years or so, but
after that they will adjust to going rates. this definately has
the potential to really be an issue.


--dingo

[RAMPAGE]

Does anyone have any data on the level of personal debt in Thailand? Seems like a valid concern given interest rate increases. When I see people paying for their latte at Starbucks with a credit card, I get worried.

[2 Cents]

the red flag issue to me is that very few home mortage loans
are fixed. they may have a fixed period of 5 years or so, but
after that they will adjust to going rates. this definately has
the potential to really be an issue.

Yes, it definitely will. However, Thailand is not the only one facing this problem though.

May I ask if most mortgages are conventional? I mean you are require to pay 20% down and can only borrow 70-80% of the asset value, etc.
Do such fancy loan like ballon or interest only loan exist in Thailand?
And do you know if most loan are for first home?

If the mortgages are for first home in which owners really live in, then it might not be as big of an issue as if they are for investment or speculation. People may trade off other of their consumptions and try their best to make payment.

In any case, this definitely not a good sign and it will be hard not only for the next government, but also for lots of Thai people to manage their life under this this condition.

Does anyone have any data on the level of personal debt in Thailand? Seems like a valid concern given interest rate increases. When I see people paying for their latte at Starbucks with a credit card, I get worried.
I haven't seen primary data on personal debt. I read an article on Bangkok post once (a year or two back) that talked about credit card debts in Thailand, and they refer to BOT as the source of their data. So I assume it's somewhere on BOT web site.

NSO has data on household level http://service.nso.go.th/nso/data/data05/eco01-12/chart_table/tab9-31.pdf

[dingo]

The housing loan problem in Thailand is kinda unique in that
it seems to be no mechanism to clean everything up when
things go sour. So the mess after defaults will linger, and
linger. This is compounded by the fact that people here don't
seem to be eager to buy anything "used" - particularily houses.
a consumer defaults on a home loan, the bank effectively
"repossesses" waiting for somebody to come along and take
the property off their books for above market rates.

The problem is compounded here in that many hold properties
just for the sake of owning them. So there are quite a few,
obviously vacant for a long time, properties around here. I
don't really follow the logic. But I think it is along the lines
of using a credit card to pay for your latte in starbucks - it
looks cool. So it may not necessarily be an issue of people
up to their neck in debt, just lack of fiscal management skills
on their part.

The BOT does have some good stuff on their website - mostly
under their discussion series. However, half is in Thai - and
my Thai is limited to menus, road signs, etc. and the first half
of subtitles in movies. The NSO data is interesting, but doesn't
really say much as it leaves out the details on the debt (which
by the way is an amount, not debt/month as listed in the
report). To really understand debt, you need to match cash
flows - if the debt listed on the NSO report is revolvign/credit
card debt, then i would say there is an issue. If the debt on
the report also includes debt such as mortgages, then it is
inconclusive. Such is the problem with data here.

--dingo

[2 Cents]

Dingo,
Thanks for the correction. Yes, the debt is total, not monthly, and I beleve it's all outstanding debt at the end of the year.

I completely forgot about the Thais' perception of used things. Unlike in the U.S. where people are eager to get a foreclosure home to take advantage of possible lower price than market value, Thais are just never want to used anything old.

In the case like this, investment in housing construction does not always good for economy, does it? I mean over investment could lead to many foreclosures, which many may eventually have to be demolished. well, it sure does increase employment in short run (during construction and demolition) but it may not necessary increase capital stock, right?

Since it seems that I am one of not many Thai around here, I will try to share with you any data I have that's not in English. I don't really understand the implication of all those data and may be any of you can help educate me :)

As you may expected, the purpose of household debt varies across region. As of 2547, on average household owe 104,571 Baht, of which about 36.5% of the loan are for residential (they used the word rent/buy houses or lands), 29.2% is for consumption, 15.2% from business that are not Agr, 16.2 are for Agr Bus, and 2.9% are for others.
When you look locally, the ratio varies. Around Bangkok have average debt of 155,622 baht, (Bangkok and the 3 provinces) 54% of this is spent on residential and 24.3% on consumption. While the rural area in the Northeast, which have average debt of 83,278 bath, spent 18.3% go to residential and 40.4% are for consumption.

Of course you would expect the rurals to spend less than city people on housing since cost of living there are lower.
High ratio of loan going to residential may looks like people invest in their home. However, I wonder if too high mean people are over-spend (more than they can afford) on residential. So instead of they wisely spend, they may actually just another one who is in the wait-list for foreclosure.

I don't know about Thailand, but in the U.S. there is a simple rule that household shouldn't spend more than 1/4-1/3 of their income on housing. Do they have such think in Thailand?

Scuba22,
Regarding credit card debt. As of Jan 2006, all credit card out standing is 143.38 billion baht (a little over 20% increase from Jan 2005), a little over 10% of this is for Cash Advance. This translate to an average of about 14,370 baht outstanding on each account (about 6% increase from Jan 2005).

Got to run, will catch up with your guys later.
Have a great weekend.
:D

[Wisarut]

For Thai People -> New House Mean thier home until they are FORCED to move somewhere else ->either by the Pressure of the Boss who want their subordinate livign closer to theri offices or the pressure fro mLad Exapporpriation! Think abotu it!

[dingo]

Dingo,
In the case like this, investment in housing construction does not always good for economy, does it? I mean over investment could lead to many foreclosures, which many may eventually have to be demolished. well, it sure does increase employment in short run (during construction and demolition) but it may not necessary increase capital stock, right?


well, it seems like they do foreclose on properties here. the difference
is that the lenders seem to hang on to the properties in the hopes of
making the loan good.

i think you have to back up and look at the whole picture. a couple of
things come to mind.

-- lending firms here seem very reluctant to recognize bad/
uncollectable loans on their books. hence this behavior of sitting
on their bad loans, and waiting out higher prices on property that
is not even appreciating (but depreciating rapidly because of
neglect).

-- holding costs here are negligble/invisible. in the US, property
taxes as a means for raising revenue would discourage somebody just
sitting on property as it is a visible "outflow". from what i
understand, property taxes as a means of raising government
revenue only occurs when the property changes hands. not
a yearly assessment.

on a personal note, i would welcome some additional taxes if they
were to use the money to put in decent roads, and i didn't have to
drive an extra six kilometers, making two extra left hand turns and
two u-turns (in place of a right turn) to get home....


I don't know about Thailand, but in the U.S. there is a simple rule that household shouldn't spend more than 1/4-1/3 of their income on housing. Do they have such think in Thailand?


well, the only source i know of is the government housing bank, and
their information is 'spotty'. they have some interesting data on loan
sizes, etc., but that is only up to 1998. the stuff in their annual
reports doesn't go into much detail. total loans originated per year
show big increases, but also a lot of volatility.

anecdotally, i only know of two cases reqarding income rules, and they
were both for government employees. in these cases, the mortgages
was around 65% of montyly salary, and required about 10% deposit.

[Scuba22]

Perhaps one factor in the mortgage situation here is that much of what we're discussing - foreclosures, debt haircuts, NPLs - are fairly new phenomena in Thailand, both for consumers and banks. Prior to 1997, Thailand had double-digit growth for almost 30 years. In a high-growth environment like that, who worries about bankruptcy laws or NPLs?

When the whole thing came crashing down in 1997, the panic was accompanied by intertia. Suddenly people realized that not having adequate bankruptcy laws is a serious problem - witness the continuing drama/farce of TPI.

Instead of building a serious modern accountable economic system, Thailand opted for a quick-fix "easy way out" in the promises of Thaksin. He basically promised that the state would come to the rescue, with the TAMC, whereby the government would tke bad loans off bank books, and his "asset reflation" policy that bascially asserted that accelerated growth from an easy-credit environment would pump up the market values of those dud assets sitting on the balance sheets.

It all sounded pretty good to people who think that there are free lunches to be had, and so there doesn't seem to be any reason to change behavior.

The primacy of the property sector here is I think indicative of the immaturity of the economy. A mature economy would invest in ideas and innovation, not land. Heavy investment in land and real estate to me belies a lack of imagination and a fundamental insecurity about the future of the country.

Cheers,

Scuba22