Fiscal Policy Research Institute, Bangkok, Thailand Improvement of Corporate Governance in Thailand: A Decade after the Crisis Kanit Sangsubhan, Ph.D. Director Fiscal Policy Research Institute, Thailand 1 1
Fiscal Policy Research Institute, Bangkok, Thailand Before Crisis 1990-96 Crisis Management 1997-98 After Crisis 2000-06 Massive Massive Management Balance Prudential Crisis Capital Inflow Capital Outflow Sheet Regulatory Problem Changes Bubble in Housing & Equity Double Mismatch Inadequate Risk Management CG Improvement Weak Corporate Governance Capital A/C Liberalization Further Liberalization “Favorable Environment” 1. Quantitative: Bail-out or Bail-in Prudential regulation Regulatory Changes (K-injection / K-Control) Management of FX 2. Price: Exchange rate / Tight or Loose Macro De-international LCY Interest rate Policy (Fiscal/Finance) Favorable of global Flexible 2 2 financial markets Exchange rate scheme
Fiscal Policy Research Institute, Bangkok, Thailand Property Development Sector 2500 600 On Dec. 93, Market On Dec. 93, Sector 500 2000 Cap. = 500.38 Index = 2266.55 t h billion baht 400 a 1500 x b e n d 300 illio In 1000 200 b 500 100 0 0 1 3 3 7 8 1 2 2 4 5 5 6 8 9 6 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 - - - - - - - - - - - - - - n c - v n n g r y l b p g r t u c r a a e o a a e e p u a u u M O J M M D S A N J A F J J A Crisis can be viewed as a dualistic problem: Wrong policies and inappropriate CG system Banking Sector 1600 1200 On Jan 96, Sector On Jan. 96, Market 1400 1000 Index =1494.57 Cap. = 1094.15 1200 billion baht 800 t h 1000 a x b e d n 800 600 n o I i l 600 l B i 400 400 200 200 0 0 3 3 1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 8 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 - - - - - - - - - - - - - - - - - - n n n n n n n n n u l u l u l u l u l u l u l u l u l a a a a a a a a a J J J J J J J J J J J J J J J J J J
Fiscal Policy Research Institute, Bangkok, Thailand Improvement of CG: A National Agenda Improvement of CG: A National Agenda Chaired by Prime Minister Subcommittee on Subcommittee Subcommittee on Law Amendments on Accounting Best Practices of and Enforcement Standard Listed Companies Subcommittee on Subcommittee Subcommittee on Improvement of on Improvement Investors Education Corporate of Corporate and Public Relations Governance of Governance and on Corporate Com mercial Banks, of Securities Governance in Finance Companies Companies Thailand and Insurance Companies 4 4
Fiscal Policy Research Institute, Bangkok, Thailand Five Core Principles 1. Gradual moving with target 2. Supporting not enforcing 3. Closely monitoring with punishment 4. Balancing of incentive and enforcing measures 5. Rules and regulations must base on appropriation and practical Certification: All directors must pass IOD (Institution of Directors) Auditing: Every listed company must have Audit Committee chaired by independent director + 2 IDD AGM: Strict guideline on arranging AGM ( Annual General Meeting) Minority shareholders right 5 5
Fiscal Policy Research Institute, Bangkok, Thailand Three Pillars Moving Good CG R egulatory D isciplines OECD Principles in law • Basic right • Proxy vote • Required documents • Insider: close monitoring + • Investors Association: tape recording all transactions Right of share holders • Institution Investors Club CG as investment policy G ood CG Issuance of principles • Government Pension Fund and best practices Lead CG enforcement Disclosure of compliant and non-compliant • Awards: Training program: a lot Disclosure /Board of the Year / Q mark (CCT and M arket D isciplines Self D isciplines TIF) 6 6
Fiscal Policy Research Institute, Bangkok, Thailand CG in the Real Estate Business CG in the Real Estate Business � Regulation and protection Regulation and protection � � Consumer protection agency Consumer protection agency � � Escrow account Escrow account � � Required infrastructure of the whole project Required infrastructure of the whole project � � Information Information � � Real Estate Information Center Real Estate Information Center � � New Private Initiative New Private Initiative � � Don Don’ ’t buy house that not yet finished t buy house that not yet finished � 7 7
Fiscal Policy Research Institute, Bangkok, Thailand Prudential Regulation in the Banking Sector Prudential Regulation in the Banking Sector � Prudential Regulation Prudential Regulation � � Subjected to BOT and SEC regulation Subjected to BOT and SEC regulation � � Financial Institution Development Plan Financial Institution Development Plan � � IAS 39 / BASEL II IAS 39 / BASEL II � � Risk Management Risk Management � � Information Information � � Disclosure of financial position and NPL Disclosure of financial position and NPL � � Credit Bureau Credit Bureau � 8 8
Fiscal Policy Research Institute, Bangkok, Thailand Thailand’ ’s CG s CG- -ROSC ROSC Thailand 9 9 Source: CG-ROSC assessment of Asian Countries during 2001-2005
Fiscal Policy Research Institute, Bangkok, Thailand Thailand’ ’s CG Watch (As of October 2005) s CG Watch (As of October 2005) Thailand Countries Rules & Enforcement Political/ Adoption Institutional Country Regulations Regulatory of IGAAP mechanisms Score environment & CG culture Singapore 7.4 5.6 7.3 9.5 5.7 7.0 (1) Hong Kong 6.4 5.8 7.8 9.1 5.4 6.9 (2) India 6.6 5.6 6.5 7.5 4.3 6.1 (3) Malaysia 5.9 4.9 6.0 7.5 3.8 5.6 (4) Taiwan 5.3 4.9 6.5 5.9 3.3 5.2 (5) Thailand 5.8 4.0 5.0 7.3 3.5 5.0 (6) Korea 5.1 4.0 4.3 8.2 3.9 5.0 (6) Philippines 5.3 2.2 5.0 8.2 3.1 4.6 (7) China 4.3 4.0 5.0 6.8 2.2 4.4 (8) Indonesia 3.3 2.9 3.0 6.8 2.8 3.7 (9) 10 10 Source: CG Watch (2005), a joint report by CLSA Asia-Pacific Markets and ACGA
Fiscal Policy Research Institute, Bangkok, Thailand Problems and Way Forward Problems and Way Forward � CG is not yet the business culture CG is not yet the business culture � � Top 50 + SOEs are OK Top 50 + SOEs are OK � � Family Family- -owned and SMEs, not yet owned and SMEs, not yet— —MAI not famous MAI not famous � � Law enforcement is the next target Law enforcement is the next target � � Education and training needed for agencies Education and training needed for agencies � (Might required training and TA) (Might required training and TA) � Government Government- -owned bank needs consolidation owned bank needs consolidation � � Contribution Contribution � � Transfer a Transfer a “ “Gradual Step, and Market Friendly Gradual Step, and Market Friendly” ” approach to approach to � CLMV and others through training and technical assistant CLMV and others through training and technical assistant 11 11
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