World Bank Document

Box 5.2 Integrated debt management: the case of Thailand
The Thai government has traditionally taken a prudent especially if staff training is stepped up.
approach to international borrowing. Thailand's debt The committee's responsibilities include vetting all reservice
ratio has been one of the lowest among middle- quests for loans (including military loans) from governincome
countries. Its guidelines on public external bor- ment agencies and public enterprises, within the context
rowing have been administered by an External Debt of the country's debt service capacity. It is also consider-
Comrnittee chaired by the minister of finance.
ing possible guidelines for foreign borrowing: (a) oper-
In 1984, in part prompted by debt-servicing difficulties ating deficits may not be financed by foreign borrowing;
in the Philippines, the Thai government decided to (b) any subsidies to public enterprises must be made
upgrade the role of the Extemal Debt Committee and to explicit in the central government budget; and (c) pricing
bring debt management into the mainstream of macroec- policies of public enterprises should be analyzed for their
onomic policymaking. In particular, it decided that pub- effect on the financial viability of the enterprises and
lic external debt should no longer be considered inde- their ability to service foreign debts. However, a final
pendently of private borrowing and public domestic determination on guidelines has not yet been made.
borrowing. Reflecting this change, the committee's The committee is also responsible for monitoring and
name was changed to the Committee for National Debt reporting disbursement performance under foreign-
Policy. It is chaired by the minister of finance and con- financed projects, for managing the composition of
sists of senior representatives from the Bank of Thailand, external debt, and for reporting to the Economic Cabinet
the National Economic and Social Development Board, every four months. It suggests limits on public borrowand
the Bureau of the Budget. Its secretariat is based in ing for the year ahead and points out any inconsistency
the Ministry of Finance. It will benefit from an improved between government budgetary policy and these limits.
data management system currently being installed there,
In general, a formal ceiling on borrowing is use- payments position and to the extent that governful.
It encourages discipline and helps to focus offi- ments set prices-including interest rates and
cial attention on central macroeconomic questions. exchange rates-to reflect opportunity costs, the
Official borrowing rules can be particularly helpful need to actively control the level of capital flows is
if they cover military expenditures and projects diminished. However it may still be desirable to
that, for political reasons, are not always easy to control the structure or composition of borrowing.
control. But formal rules also carry dangers. They The extent to which the central government concan
create a sense of security that may not be justi- trols foreign borrowing as a whole varies greatly
fied. They rarely cover all types of borrowing: for from country to country (see Table 5.1). Even its
example, short-term debt is usually uncontrolled procedures for approving and monitoring its own
and may rise dangerously, as happened in Mexico borrowing differ. Generally, the Ministry of
in early 1982. Sometimes the overall debt structure Finance is the official borrower on behalf of the
can be biased by partial controls. In Thailand, for government. However, if the loan is to support the
example, the public sector's foreign borrowing has exchange rate or to build up reserves, the central
been subject to clear ceilings but its domestic bor- bank may well be the borrower. In a few cases,
rowing has not. As a result, the public sector may other government departments have indepenborrow
heavily from the domestic market, crowd dently borrowed from abroad, usually short term.
out the private sector, and so force it to borrow In most developing countries, public enterprises
abroad-often at higher interest rates and shorter are allowed to borrow on their own account. Usumaturities
than the government could have ally they must register their loans with the central
obtained. government; in a growing number of countries,
they now need its prior approval. Sudan recently
How much control? introduced this requirement, and Costa Rica, Turkey,
and Zambia have strengthened the screening
The level of control over capital inflows has, on process. Mexico introduced a foreign borrowing
average, increased in the 1980s. Increased control law in 1977, requiring all borrowing by public
has been required mainly because of the inade- bodies to be authorized in writing-though some
quacy of economic policies. To the extent that gov- (notably PEMEX) have occasionally borrowed
ernments adhere to fiscal and monetary policies without explicit permission. In a few countries, the
that are consistent with a sustainable balance of central government borrows on behalf of public
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