FTA may force debtors to reform

Bangkok Post

19 January 2005

FTA may force debtors to reform

No chance for Thai banks, says group

WORANUJ MANEERUNGSEE

Banking liberalisation under the Thai-US free trade agreement will affect not only local banks, but also debtors, according to Twatchai Yongkittikul, the secretary-general of the Thai Bankers’ Association.

Thai banks definitely could not compete with American commercial banks, said Mr Twatchai at a conference on the effects and policy of free trade area agreements, organised by the National Economic and Social Advisory Council.

’’It’s not a matter of technology or efficiency because we can import or make improvements on them. But it’s about size. Assets of a medium-sized American bank are bigger than those of 10 Thai banks combined,’’ he said.

’’In the future, size does matter. The bigger the bank, the lower its financial cost,’’ Mr Twatchai pointed out yesterday.

A third round of the Thai-US FTA talks is scheduled in March.

He said the size of the Thai economy was too small to accommodate American banks. ’’Only five or six American banks could bring in a monopoly and I wonder who will deal with it,’’ he questioned.

He said that once American banks played a significant role in Thailand, their strict risk-management approach would block small Thai business operators from accessing credit due to their substandard accounting systems.

’’Existing American and European banks will not steal clients from Thai banks because they see a high risk in those debtors. But the liberalisation would reorganise those debtors,’’ he said.

Another of his concerns is that under the FTA framework, the US will not allow its counterparts to ban outflow even during the crisis. Besides, some risky financial products of American banks which are prohibited in the US can be sold in other countries. Sadly, the US government does not protect customers outside its territory.

Though the banking sector seems to emerge as a loser from the Thai-US FTA, local bankers have not urged the government to stop the bilateral negotiations. Instead, they have asked the administration to give them some time to adjust themselves. After all, the local banks have yet to fully recover from the financial crisis in 1997.

Echoing the suggestion made by Dr Teerana Bhongmakapat, an economics lecturer at Chulalongkorn University, Mr Twatchai urged Thailand to think twice about establishing the FTA with the US, the world’s largest economy.

Dr Teerana said that like many developing countries, Thailand wanted to form an FTA with the US, one of the world’s major importing countries in order to maintain its market share and expand its export market there.

But such a benefit would be short-lived, Dr Teerana said, explaining that pretty soon other countries would get similar advantages granted Thailand. Washington has proposed to have bilateral FTAs with 10 more countries and already signed the agreements with 12 economies.

In the long run, some of Thailand’s sectors might stand to lose when competing with their counterparts in the US, especially the basic services and biotechnology sectors.

Both of them said that as the pros and cons of the Thai-US FTA were not clear and the expected advantages would be short-term, Thailand should perhaps give up the idea of the Thai-US FTA.

’’Actually, we should conduct a study on what would happen to our economy if we do not have the bilateral FTA with the US,’’ Mr Twatchai suggested.

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