Sasin Journal of Management: Volume 7, Supplement, 2001


Sasin Journal of Management: Volume 7, Supplement, 2001

na_sjmFranklin Allen
Financial Structure and Financial Crisis

For many years the economies of South East Asia were regarded as models for economic development. The four tigers, Hong Kong, South Korea, Singapore and Taiwan grew from low levels of income per head to among the highest in the world in a few decades. The newly industrializing economies of Indonesia, Malaysia and Thailand had also started to grow at an extremely rapid rate. The Philippines had performed better in recent years. The success of these economies was documented in a 1993 World Bank report entitled The East Asian Miracle.

na_sjmOlarn Chaipravat
Towards a Regional Financing Arrangement in East Asia

This newly proposed Regional Financing Arrangement (RFA) scheme would aim at eventually becoming complementary to existing international facilities in terms of the out-placements made upfront as well as the timeframe involved in the operations; it would have sufficient size; and it would allow certain ASEAN member countries to benefit from financing from the North East Asian countries, which they otherwise might not be able to gain access to under a bilateral framework. There is also the question of moral hazard, whereby a country realizing that there is emergency rescue funding available might become less cautious with its macroeconomic policy management, particularly as related to the balance of payments. A crisis to be avoided would therefore be inadvertently made to happen. To avert the problem of moral hazard, the scheme as proposed must be accompanied by an effective and efficient system of surveillance, self-monitoring, peer review, and final decision making capability.

na_sjmOlarn Chaipravat & Pongsak Hoontrakul
Transitioning from Dysfunctional to Normal Banking System after the 1997 Crisis: Thailand’s Policy Considerations

Transitioning from a dysfunctional to a normal banking system after the Thailand 1997 crisis is fundamentally a dynamic, trust building, process-oriented management problem. It is not a static goal-oriented process with a close-end solution because of the multi-dimensional and dynamic complex nature of the problem. Critical factors for success are an adequate understanding of and prudent addressing of all the stakeholders’ interests – foreign and domestic, private and governmental, borrowers and lenders. It is very important that banks should be restored to their normal function as ‘bridges of trust’ for fund users and fund providers to nurture a recreation of innovative SME entrepreneurs. The objective is to stimulate new value-added private investment for sustainable growth and wealth creation.

na_sjmM.R. Pridiyathorn Devakula
Monetary Policy in Thailand: Current Challenges and Prospects

It is an honour to address the 8th Asia Pacific Financial Association Annual Conference and to welcome the distinguished members of the Asia Pacific financial community. Judging by the attendance, I trust that this three-day event will prove most fruitful and rewarding for all participants.

na_sjmEdward J. Kane
Using Disaster Planning to Optimize Expenditures on Financial Safety Nets

A country’s safety net simultaneously protects bank stakeholders from – and exposes taxpayers to – costs generated by bank fragility. For this reason, most economists agree that, although externalities may complicate the task of safety-net design, safety-net managers should avoid either subsidizing or taxing bank risk taking at the margin.

na_sjmDeborah Lucas
Investing Public Pensions in the Stock Market: Implications for Risk Sharing, Capital Formation and Public Policy in the Developed and Developing World

Concerns that existing public pension systems will be unable to pay benefits to a rapidly aging population without sharp tax increases, and the prospect of higher average returns on stocks than on government securities, are drawing the attention of policymakers worldwide to the option of investing public pension assets in stocks. Including stock market investments in public pension plans could improve risk sharing within and between generations, and could perhaps lead to faster market development in some countries. It could also result in excessive risk-taking, higher transactions costs, and a false sense of increased financial security. This paper assesses these issues, with an emphasis on the considerations that are of special importance to developing markets. A contrast is drawn between the demographic outlook in East Asia and the major industrialized countries. Some lessons are drawn from the reform experience in Chile and elsewhere in Latin America.

na_sjmDeborah Lucas
Investing Public Pensions in the Stock Market: Implications for Risk Sharing, Capital Formation and Public Policy in the Developed and Developing World

He Dickensian sentiment expressed above could well be uttered by stock exchanges around the world. By many metrics, the environment for stock markets is flourishing. The number of markets is growing, helped in part by the prolific opening of new options and futures markets by established equity markets. New trading systems are revolutionizing trading, both on the exchanges and on their new rivals, the ECNs. And the equitization of global capital markets continues, creating demands for equities and their derivatives worldwide. But prosperity is not universal. Revenues for Asian-Pacific stock exchanges have been falling since 1994, and the revenues of South American exchanges have recently followed suit. Some established markets such as Argentina and New Zealand have had such calamitous falls in trading volume as to be approaching extinction. The new markets designed to incubate fledgling companies re in shambles – Germany’s Neuer Market with 340 listings has perhaps 10 successful companies, while Spain’s Nuevo Mercado has only 12 listed companies and virtually no trading. Hong Kong’s Growth Enterprise Market (GEM) market has lost more than 60% of its value in the last 14 months, and Mesdaq, Jasdaq, and Sesdaq are all faltering. The current situation today is clearly a tale of two markets.

na_sjmPasuk Phongpaichit
Good Governance: Thailand’s Experience

Good governance was the new buzz word of the 1990s. It was used by the World Bank in 1989 in the report Sub-Sahara: From Crisis to Sustainable Growth to refer to good management of government mechanisms in administering social and economic resources for development. In that report the word governance was used to cover three broad areas: (1) the political structure; (2) the processes which those with political power use to administer and manage the social and economic resources of the country; and (3) the capability of those in power to plan and implement policy and to improve administration. The World Bank began to push for reform of development mechanisms in countries which asked for assistance from the Bank in the areas specified in (2) and (3), and left the reform of the political structure aside (Oraphin 1997, 4). To put it simply (2) and (3) may be read as modernization of the public administration, which was promoted by the Inter-American Development Bank and other agencies including the World Bank before good governance came into vogue.

na_sjmGary H. Stern
Moral Hazard and Bank Protection

Good afternoon. The organizers of the conference largely gave me free rein to select a topic, although they suggested that I may want to address “moral hazard and bank protection,” in fact one of my favorite themes. And so I will take them up on the suggestion, because I think significant and challenging public policy issues remain in this area.

I essentially will be emphasizing three points.

  1. Prospective developments in global financial markets, together with the reforms of the Based II capital proposal, suggest that over time the international banking system will be characterized both by greater adherence to consistent standards and by sounder banking institutions.
  2. There will over time be greater reliance by supervisors on disclosure, market data, and market discipline of banks. The same factors that have pushed policymakers to support increased disclosure for banking organizations will lead them to take action to address the perverse incentives – the moral hazard – of too-big-to-fail policies.
  3. Effective market discipline which addresses the moral hazard problem requires credibility, in the sense that uninsured creditors of large, complex banking organizations must believe that they are at risk of loss. Establishing and maintaining this credibility are difficult, and I will have some specific suggestions about how this might best be accomplished.

na_sjmPrasarn Trairatvorakul
General Policy on the Thai Securities Market

I would like to express my appreciation to the Steering Committee of APFA 2001 Conference for inviting me to join such as distinguished group of panelists at this Conference. In making my remarks on the topic of “General Policy on the Thai Securities Market”, I would like to discuss some important issues of which the aim is to lay down a firm foundation for the sustainable growth of the Thai securities market.

First, I will start with a discussion of the concept of speculation. Second, I will examine empirical evidence from the Thai market. Third, I would like to share with you some thoughts on the corporate governance issue. Then, I will conclude my remarks with some comments and suggestions.

na_sjmDavid Walker & Pongsak Hoontrakul
Transitioning from Blanket to Limited Deposit Guarantees: Thailand Policy Considerations

In the aftermath of the 1997 crisis, many Asian countries such as Thailand are examining options for transitioning from blanket deposit guarantees to more limited and explicit deposit insurance systems (DIS). Though the need to reduce blanket guarantees and their associated costs in well understood, it is critical for Thailand that this transitioning process be effectively managed and that a well designed explicit DIS be introduced. The full implementation of a DIS should only be undertaken when the banking system returns to normalcy and the financial and economic environment is conducive. Otherwise, transitioning could be a potentially dangerous proposition leading to increased bank fragility, ‘capital flight’ and a fertile ground for moral hazard and other agency problems. The key questions are how to manage the transition process in a timely, orderly and constructive manner and how to design an incentive compatible DIS for all bank stakeholders.

Transitioning to a DIS should be seen as an integral component of a country’s overall financial sector reform strategy. Transitioning is fundamentally a dynamic, trust building, process-oriented management problem as inferred by Chaipravat and Hoontrakul (2001). It is critical also when designing a DIS to effectively balance the dual conflicting goals of (1) protecting less-financially sophisticated depositors and contributing to financial stability and (2) minimizing bank incentives to take excessive risk. In this paper, after taking into account Thailand’s unique banking system structure – highly concentrated in both banks and large depositors – an innovative two-tier hybrid DIS model is proposed. A publicly administered compulsory system would provide protection for low coverage level bank deposits (i.e. similar to an FDIC, CDIC approach) and a private/public system akin to that used in Germany would provide additional protection for high coverage level bank deposits on voluntary basis. Some rules-based check lists, policy recommendations and implication issues are presented.

na_sjmPaiboon Wattanasiritham & Panthip Petchmark
Micro-Banking and the Asian Economic Crisis

The problem of poverty and the development gap between various social groups continues to be a critical problem that various countries, particularly developing countries in Asia, are facing. The lack of opportunity to access sources of funds for development is a major factor contributing to the problem of poverty. As the majority of the poor have uncertain income and lack collateral, financial institutes are unable to distribute credit to them. However, the Women’s World Banking (1995) has estimated that the majority of countries in the world have formal financial systems that can be accessed directly without having to utilize the services of moneylenders. The financial system that provides small-scale credit services/promotes savings for low-income individuals or the poor has different labels, depending on characteristics, such as micro-finance, micro-banking, and micro-credit. This system is an important tool/mechanism in alleviating the problem of poverty and providing the poor with the opportunity to utilize resources to develop their quality of life, establish groups and empower each other, resulting in grassroots development leading to sustainable development.