Different approaches to financial restructuring
The crisis countries have taken different approaches to re-capitalising banks and resolving non-performing assets. Malaysia, for example, has injected public funds into undercapitalised banks while transferring a portion od non-performing loans to a centralized, publicly owned asset management corporation, that is responsible for recovering assets and restructuring the financial liabilities of over-indebted debtors. Thailand, by contrast, has tied the provision of public funds to more stringent conditions imposed on bank owners. Thailand has not created a centralized asset management corporation to dispose of non-performing loans because it wants banks to re-capitalise themselves and devise their own asset disposition strategies.
Malaysia’s restructuring program has been tightly orchestrated by the government, emphasising mergers and avoiding closures of financial institutions or sales to foreign institutions. Malaysia was somewhat slower than the other countries in devising an institutional structure for handling the financial and corporate restructuring process, in part because the depth of the problems in the banking sector was substantially less. It was not until mid 1998 that the government established three new institutions to deal with the problems of non-performing assets in the financial systems, bank re-capitalisation and corporate debt restructuring . but the operation of the formal institutions did not constitute the full scope of the government’s approach to financial and corporate distress; the government also engaged in a number of bank and corporate bailouts.
Thailand, on the other hand, closed two-thirds of its finance companies, with the FRA auctioning off most of the asets acquired from them. The establishment of bank-owned asset management corporations was then encouraged by the removal of tax disincentives and by a regulation allowing private banks to transfer loans to their majority-owned asset management corporations at book value, less provisioning required under a phased-in forbearance program. This strategy clearly differentiates thailand’s reform program from other programs in the region. In Malaysia, the government vested new public institutions to resolve corporate debts and restructure banks. Thailand did the same for the finance companies, which were the first hit by the crisis, but which represented a small part of the overall losses in the system. However, for banks, which went into crisis later. The thai government has followed a market-led, decentralized approach to reform