Thai court rules flood plan, FIDF transfer legal

Residents wade through a flooded road in Had Yai district of Songkhla province, southern Thailand, January 2, 2012.

BANGKOK (Reuters) - Thailand's constitutional court on Wednesday ruled in favour of two decrees that set up a 350 billion baht flood prevention fund and the transfer of certain debt service obligations to the central bank from the finance ministry.

The judges said both decrees approved by cabinet on January 10 involved urgent matters and it was therefore within the constitution for the government to issue them without seeking prior parliamentary approval.

The first decree was to fund infrastructure and defences to prevent a repeat of last year's devastating floods, Thailand's worst in 50 years, and win back the confidence of foreign investors whose factories were inundated.

"This fund is a way of ensuring economic stability after the floods," a judge said in reading the verdict.

"There were 841 factories affected. These were key to Thai industry, including the auto parts and computer chips industries."

The court also declared legal a decree that made the Bank of Thailand responsible for managing 1.14 trillion baht of Financial Institutions Development Fund (FIDF) debt dating from bank bailouts during Asia's 1997/98 financial crisis.

The arrangement will free up annual interest costs of some 60 billion baht that were previously paid by the finance ministry from the national budget.

The court said payments on the debt were too high and were an excessive burden on state finances.

The opposition had petitioned the court to look into the legality of bypassing the legislature to issue the two decrees, part of a package of four. Normally such decrees are only used for emergency actions.

The floods affected a third of the country over several months and killed more than 800 people. Huge industrial estates were overwhelmed and many factories have still not reopened.

The flooding caused massive disruption to global supply chains, particularly for computer and automobile parts.

The economy shrank a record 10.7 percent in the fourth quarter from the third but is expected to rebound this year, helped by reconstruction spending.

(Reporting by Amy Sawitta Lefevre; Writing by Martin Petty; Editing by Alan Raybould)