Publication Code: BM5
Lessons Learned from Thailand’s Experience with Financial-Sector Restructuring
by Veerathai Santiprabhob
Since the financial crisis erupted in Thailand in 1997, the Thai authorities have implemented a number of drastic financial-sector restructuring measures to restore financial stability and address prevailing structural weaknesses. The restructuring measures have been based on both market-driven and state-led mandatory approaches and could be categorized into two main groups: (1) those intended to address financial institutions' insolvency and capital adequacy, and (2) those intended to address non-performing loans and distressed assets. Owing mainly to the severe magnitude of the crisis, total public costs of Thailand's financial-sector restructuring are estimated to be in the range of 30-40 percent of GDP, raising serious concerns over the country's long-term public debt sustainability.
While the Thai financial-sector restructuring process is not yet complete, this study highlights relevant policy issues and tradeoffs as well as documents the rationale and the main features of key restructuring measures that have been implemented by three government during the past five to six years. It also reviews their effectiveness, incentive structure, operating constraints, associated public costs, and subsequent impact on the Thai financial system going forward. It is hoped that the menu of policy and operational issues discussed in this study will assist the authorities of other crisis-affected countries in designing their financial-sector restructuring measures in the most cost-effective manner.
November 2003