Managing Thailand's fiscal stimulus debt
Planning at the Public
Debt Management Office
By Jon Fernquest 
Thailand's
Finance Minister Korn Chatikavanij was named finance minister of the
year yesterday by The Banker
Magazine (Read article).His major accomplishment last year was piloting Thailand's fiscal stimulus program through Thailand's turbulent political waters.
Fiscal stimulus requires government borrowing.
The borrowing that Thailand needs to do does not even approximate the borrowing that the US government will have to do in the near future.
Nevertheless, the level of the debt that Thailand will run up and need to service is historically very high.
Today's article provides details on the Thai government agency that manages that debt: the Public Debt Management Office (PDMO).
Today's article begins after the vocabulary.
fiscal stimulus - temporary
increases in government spending and tax cuts to get business
started
in an economy again after a recession and economic downturn
public debt - government debt, money that the government has borrowed and owes
Public Debt Management Office (PDMO) - the Thai government agency in charge of borrowing money for the government and managing government debt
public debt - government debt, money that the government has borrowed and owes
Public Debt Management Office (PDMO) - the Thai government agency in charge of borrowing money for the government and managing government debt
Economics
PDMO continues modernisation drive
Public debt at 45.83% of GDP in October6/01/2010
Wichit Chantanusornsiri
The Public Debt Management Office must continue modernising its approach to managing the country's debt to ensure flexibility in both the short and long term, says director-general Chakrit Parapuntakul.
modernisation drive
- a program to make practices or equipment more modern and up-to-date
public debt - the money that has been borrowed by the government to pay for spending deficit
spending deficit - when taxes collected by the government are not enough to pay for government spending (so must borrow money to pay for difference)
flexibility - the ability to change your plans and do things a different way (if necessary)
public debt - the money that has been borrowed by the government to pay for spending deficit
spending deficit - when taxes collected by the government are not enough to pay for government spending (so must borrow money to pay for difference)
flexibility - the ability to change your plans and do things a different way (if necessary)
The office's role was to secure the lowest-cost funding possible for the government while ensuring a smooth path for future debt repayment, he said.
Public debt has soared in recent years as tax revenues ebbed during the global recession even though policymakers have ramped up public spending to help stimulate economic growth.
According to the PDMO, public debt stood at 3.99 trillion baht last October, equivalent to 45.83% of gross domestic product. Debt stood at just 3.4 trillion baht or 37.56% of GDP in October 2008.
secure the
lowest-cost funding
possible - get
money to borrow at the lowest interest rate
available
debt repayment - when a borrower pays back loan
ebbed - decreased
ramped up public spending - increased government spending
Gross Domestic Product (GDP) - a measure of economic activity in a country, the value of the country's output of goods and services. GDP is defined roughly as: GDP = Household Consumption + Business Investment + Change in Inventories + (Government Spending - Taxes) + (Exports - Imports) (See Economist Glossary)
debt repayment - when a borrower pays back loan
ebbed - decreased
ramped up public spending - increased government spending
Gross Domestic Product (GDP) - a measure of economic activity in a country, the value of the country's output of goods and services. GDP is defined roughly as: GDP = Household Consumption + Business Investment + Change in Inventories + (Government Spending - Taxes) + (Exports - Imports) (See Economist Glossary)
Policymakers expect debt levels to rise to as high as 60% of GDP over the next several years, due largely to commitments under the 1.43-trillion-baht, three-year Thai Khem Khaeng infrastructure investment programme.
Most economists agree that while high by Thai historical standards, the debt level is not problematic and that new infrastructure investment is urgently needed to support sustainable growth over the medium term.
committments -
things that you promised to do
due largely to commitments - the reason is mostly because of things you promised to do
Thai Khem Khaeng infrastructure investment programme - Thailand's second stage fiscal stimulus program in response to the global economic crisis
fiscal stimulus - temporary increases in government spending and tax cuts to get business started in an economy again after a recession and economic downturn
high by Thai historical standards - if you compare with the past in Thailand, then the level is high (but now compared to other countries)
not problematic - won't cause problems
urgently needed - must get quickly
sustainable - is an activity that can continue over long periods of time (some activities, like spending more money than you have, are not sustainable)
over the medium term - during a period of time that is 2-10 years into the future
due largely to commitments - the reason is mostly because of things you promised to do
Thai Khem Khaeng infrastructure investment programme - Thailand's second stage fiscal stimulus program in response to the global economic crisis
fiscal stimulus - temporary increases in government spending and tax cuts to get business started in an economy again after a recession and economic downturn
high by Thai historical standards - if you compare with the past in Thailand, then the level is high (but now compared to other countries)
not problematic - won't cause problems
urgently needed - must get quickly
sustainable - is an activity that can continue over long periods of time (some activities, like spending more money than you have, are not sustainable)
over the medium term - during a period of time that is 2-10 years into the future
For the PDMO, borrowing plans are aimed not only at minimising the government's funding costs and the repayment burden in future years, but also at supporting capital market development and the overall economy.
Mr Chakrit said the PDMO aimed to increase liquidity in the government bond market, particularly for five- and 10-year bonds to help establish a benchmark for the market.
A liquid secondary market based upon an established benchmark would help give flexibility to the government in issuing new debt if confronted by unseen circumstances, he said.
aimed at minimising the
government's funding costs - paying the smallest amount
possible to borrow money (very low interest rate)
a burden - a difficult thing to do
repayment burden - paying back a loan (a difficult thing to do often)
capital market development - creating larger and better functioning capital markets that can finance more businesses that deserve it
increase liquidity in the government bond market - increase the number of people buying and selling government bonds so that it is easier to buy and sell bonds when you want to do this
benchmark - a standard that other things can be compared to
establish a benchmark - create a standard for comparison
secondary market - a market for reselling something (like a stock or bond) after it is issued
liquid secondary market - a market with enough people so that it is easy to buy and sell quickly
flexibility - a situation that allows you to do things in different ways if you want to
issuing new debt - borrowing money with a bond or other security that you "issue"
confronted by unseen circumstances - things happened tha you didn't expect (was surprised)
a burden - a difficult thing to do
repayment burden - paying back a loan (a difficult thing to do often)
capital market development - creating larger and better functioning capital markets that can finance more businesses that deserve it
increase liquidity in the government bond market - increase the number of people buying and selling government bonds so that it is easier to buy and sell bonds when you want to do this
benchmark - a standard that other things can be compared to
establish a benchmark - create a standard for comparison
secondary market - a market for reselling something (like a stock or bond) after it is issued
liquid secondary market - a market with enough people so that it is easy to buy and sell quickly
flexibility - a situation that allows you to do things in different ways if you want to
issuing new debt - borrowing money with a bond or other security that you "issue"
confronted by unseen circumstances - things happened tha you didn't expect (was surprised)
The PDMO also wants to continue developing the longer end of the bond yield curve with issues of 20 and 30 years. Long-dated bonds are relatively rare in the market, despite demand from institutional investors such as insurance firms that have long desired a channel to better match their long-term liabilities and assets.
The office will also continue issuing instruments such as public savings bonds and is also studying the possible issue of index-linked bonds and floating rate notes to cater to the market's different needs.
Index-linked bonds would set interest rates linked to a set benchmark, such as inflation rates. Floating rate notes, meanwhile, offer interest payments that are tied to market rates, rather than a fixed coupon rate throughout the term of the instrument.
yield of a bond - the
interest rate of the bond, the annual income from a bond expressed
as a percentage of the current market price of the bond, the annual
coupon of the bond divided by the market price of the bond (See The
Economist glossary)
yield curve - the curve that describes how the interest rate or cost of borrowing changes on bonds of different maturity (See The Economist Glossary and Wikipedia)
the maturity of a bond - the time when the money borrowed with a bond is repaid, the end of the bond
longer end of the bond yield curve - the end of the yield curve for bonds which shows the yield on long maturity bonds (bonds with a liong life)
long-dated bonds - a bond with a long maturity or life
institutional investors - companies that must invest large amounts of money as part of their business such as insurance companies (See Wikipedia)
a channel to Y - a device, method or way to achieve goal Y
long-term liabilities - money owed to people far in the future (wait a long time to pay back)
long-term assets - assets like bonds that have a long life or maturity, that will be owned or held for a long time
match their long-term liabilities and assets -
instruments, financial instruments -
public savings bonds - governments bonds in small denominations sold to the public in order to save money
denominations - the value of a bond, marked on the bond (or value marked on other items such as coins or currency)
index-linked bonds - when a bond's payments change with the inflation rate so that the bond return does not suffer under inflation (See Wikipedia)
interest rates linked to a set benchmark
cater to needs - give people the things they need
floating rate notes - a bond with interest rate that can change (for example: tied to anotehr rate such as the interest rate that banks use ot lend to each other)
interest payments that are tied to market rates - when the bond pays an interest that changes as market rates go up and down
fixed coupon rate - when the bond has an interest that is fixed and does not change over time
term of the instrument - the length of the time the investment lasts (the length of its life)
yield curve - the curve that describes how the interest rate or cost of borrowing changes on bonds of different maturity (See The Economist Glossary and Wikipedia)
the maturity of a bond - the time when the money borrowed with a bond is repaid, the end of the bond
longer end of the bond yield curve - the end of the yield curve for bonds which shows the yield on long maturity bonds (bonds with a liong life)
long-dated bonds - a bond with a long maturity or life
institutional investors - companies that must invest large amounts of money as part of their business such as insurance companies (See Wikipedia)
a channel to Y - a device, method or way to achieve goal Y
long-term liabilities - money owed to people far in the future (wait a long time to pay back)
long-term assets - assets like bonds that have a long life or maturity, that will be owned or held for a long time
match their long-term liabilities and assets -
instruments, financial instruments -
public savings bonds - governments bonds in small denominations sold to the public in order to save money
denominations - the value of a bond, marked on the bond (or value marked on other items such as coins or currency)
index-linked bonds - when a bond's payments change with the inflation rate so that the bond return does not suffer under inflation (See Wikipedia)
interest rates linked to a set benchmark
cater to needs - give people the things they need
floating rate notes - a bond with interest rate that can change (for example: tied to anotehr rate such as the interest rate that banks use ot lend to each other)
interest payments that are tied to market rates - when the bond pays an interest that changes as market rates go up and down
fixed coupon rate - when the bond has an interest that is fixed and does not change over time
term of the instrument - the length of the time the investment lasts (the length of its life)
Mr Chakrit said the PDMO also needed to be more proactive in refinancing existing debt and using swaps to help minimise overall funding costs.
At the same time, the office has played a key role in helping maintain the country's credibility in the local and international debt markets.
"Thailand has never had a case of default, going back to King Chulalongkorn's time when the country took its first overseas loan in borrowing funds from England to build a train system," he said.
proactive - acting
to solve problems before they even happen
refinancing existing debt - find another loan to replace the loan you already have (when it ends or to get a better interest rate, for example)
swaps - a form of derivative that can be used to insure and protect against price changes of securities
credibility - believability
maintain the country's credibility - take action so that people continue to belive in the country
default - fail to pay back loan
refinancing existing debt - find another loan to replace the loan you already have (when it ends or to get a better interest rate, for example)
swaps - a form of derivative that can be used to insure and protect against price changes of securities
credibility - believability
maintain the country's credibility - take action so that people continue to belive in the country
default - fail to pay back loan
From an operational standpoint, the PDMO is continuing to modernise its systems and databases to support its work, he said. One initiative will help give officials a single view of the country's overall debt portfolio, including currencies, interest rates and maturities.
Future plans will incorporate broader macroeconomic data into the system, such as economic growth forecasts and exchange rate movements with links to international data providers such as Reuters and Bloomberg.
standpoint - view,
viewpoint, opinion, way of thinking about an issue
From an operational standpoint... - considering the views of someone who has to keep it operating effectively without problems
initiative - a new plan for dealing with a problem or achieving some goal
portfolio - the set of investments owned by a person or an organization
maturities - the life of a bond or other security (the period of time that it is active)
economic growth forecasts - how much economic activity will increase (or decrease) in the near future, according to experts
exchange rate movements - when the amount that you can change your currency into other currencies goes up and down
Reuters - a major world news agency whose software development division is located in Bangkok (See Wikipedia)
Bloomberg - a major providor of global business news (See Wikipedia)
From an operational standpoint... - considering the views of someone who has to keep it operating effectively without problems
initiative - a new plan for dealing with a problem or achieving some goal
portfolio - the set of investments owned by a person or an organization
maturities - the life of a bond or other security (the period of time that it is active)
economic growth forecasts - how much economic activity will increase (or decrease) in the near future, according to experts
exchange rate movements - when the amount that you can change your currency into other currencies goes up and down
Reuters - a major world news agency whose software development division is located in Bangkok (See Wikipedia)
Bloomberg - a major providor of global business news (See Wikipedia)
One concern for the PDMO going into 2010 is that in terms of foreign currency its highest exposure is to the Japanese yen. While interest rates for yen-denominated debt is low, expectations that the currency will continue to appreciate against the US dollar and euro pose a risk for the PDMO, and could hasten moves to swap obligations to local currency to cut exchange risk.
Mr Chakrit said the PDMO believed that government or state enterprise debt should be primarily used to finance long-term investment, not to fund current expenditure or social spending programmes.
The office will co-operate with the State Enterprise Policy Office and the Fiscal Policy Office to ensure that non-investment spending be financed through the annual budget, not new borrowing, a move that will also help improve transparency in public policy as government spending is scrutinised through the parliamentary process.
exposure, risk exposure -
face the possibility that something might go wrong in the future (at
which point you would suffer loss or damage)
highest exposure is to the Japanese yen -
yen-denominated debt - borrowing Japanese money (meaning that you must repay Japanese money, so you face the risk that the Japanese Yen gets more valuable (appreciates) and is harder to pay back)
X hastens Y - X causes Y to happen faster (without delay)
swap obligations to local currency to cut exchange risk -
state enterprise - a company owned by the government
finance - borrow money to pay for something
long-term investment - something like a machine or factory that will provide benefits over a long period of time (and help the economy grow)
fund current expenditure - money that is spent right now by consumers (providing a temporary boost to the economy) but does help the economy grow permanently over the long term
social spending programmes - government programs that provide benefits to the public right now (buses, education, police, hospitals, etc...)
non-investment spending - money that does not produce future benefits
annual budget - the money that the government (or other organization) plans to spend next year
transparency in public policy - people can see every aspect of government plans and programs (can see what is going on and be sure there is no corruption)
scrutinised - looked at carefully to see if there are problems
highest exposure is to the Japanese yen -
yen-denominated debt - borrowing Japanese money (meaning that you must repay Japanese money, so you face the risk that the Japanese Yen gets more valuable (appreciates) and is harder to pay back)
X hastens Y - X causes Y to happen faster (without delay)
swap obligations to local currency to cut exchange risk -
state enterprise - a company owned by the government
finance - borrow money to pay for something
long-term investment - something like a machine or factory that will provide benefits over a long period of time (and help the economy grow)
fund current expenditure - money that is spent right now by consumers (providing a temporary boost to the economy) but does help the economy grow permanently over the long term
social spending programmes - government programs that provide benefits to the public right now (buses, education, police, hospitals, etc...)
non-investment spending - money that does not produce future benefits
annual budget - the money that the government (or other organization) plans to spend next year
transparency in public policy - people can see every aspect of government plans and programs (can see what is going on and be sure there is no corruption)
scrutinised - looked at carefully to see if there are problems
(Source: PDMO continues modernisation drive, Public debt at 45.83% of GDP in October, 6/01/2010, Wichit Chantanusornsiri, link)
