Thai Bailout of $16 Billion Wins Support

A $16-billion rescue package for Thailand’s once high-flying economy won backing here Monday from the International Monetary Fund and Asian nations led by Japan, in one of the largest global bailouts of any country.

The plan, which Japan officials said “affirms the solidarity of the region,” could be boosted by as much as $4 billion today, when Thai Finance Minister Thanong Bidaya is due to meet with officials of 21 Japanese banks to seek additional support.

The IMF-brokered deal, which provides international support to stabilize Thailand’s economy in return for austerity measures by the Thai government, is $2 billion more than initial expectations, dwarfed only by the controversial $50-billion international bailout of Mexico led by the United States in 1995. The United States plays a key role in the Washington-based IMF but is not lending money directly to Thailand in this case.

The main players are Japan--nearly half of Thailand’s debt is owed to Japanese banks--and other Asian countries, which have the most at stake in Thai economic stability. Several of Thailand’s Southeast Asian neighbors have seen their currencies battered since Thailand devalued its currency, the baht, in early July.

“The impressive part of this package is the extremely significant contributions from countries in the Asia-Pacific region,” Japanese Vice Finance Minister Eisuke Sakakibara said.

Japan and the IMF agreed to provide $4 billion each, IMF Deputy Managing Director Shigemitsu Sugisaki told a news conference. Singapore, Malaysia, Hong Kong and Australia each pledged $1 billion, while South Korea and Indonesia pledged $500 million each, he said.

The remaining $3 billion is expected to come primarily from the Asian Development Bank and the World Bank, with a possible contribution from China, but details remain to be worked out, Sugisaki said. Loans must be paid back in three to five years.

The loans and credits will be used partly to bolster Thailand’s foreign currency reserves, which were severely depleted when it sought to defend the baht this spring against attacks by currency speculators. Replenished reserves are expected to calm investor concerns about Thailand’s ability to repay its debts.

The Thai government owes $16 billion to foreign banks and bondholders, according to its finance minister. The Bank of Thailand already has injected $14.5 billion into the country’s troubled finance sector, but has been criticized for failing to make sure that companies use the money properly.

Thailand’s economy, the world’s fastest-growing between 1985 and 1995, is reeling from its slowest growth since the 1960s, the baht’s depreciation and the subsequent closure of 58 indebted financial institutions.

The bailout plan was approved at a one-day international meeting in Tokyo on Monday organized by the IMF and attended by representatives of the World Bank, the Asian Development Bank and a dozen countries. The final deal, including steps that Thailand agrees to take, must be approved by the IMF executive board in Washington later this month.

The United States, Canada, Britain, France and Germany had representatives at the meeting but did not offer any direct contributions.

The “historic” rescue package would serve “possibly as a precursor of future standard arrangements” in the Asia-Pacific region, Sugisaki said.

Some analysts speculated that participation of Thailand’s Southeast Asian neighbors in the bailout indicates that those countries may be rewarded with special investment opportunities or other benefits.

For its part of the deal, Thailand must raise taxes, cut spending and restructure its troubled financial system--steps it has already begun to take. The Thai cabinet Monday approved a general outline to cut $1.6 billion to $2.3 billion from its 1997-1998 budget, and promised to reveal details later this month.

Thailand stopped defending the baht’s peg to a basket of foreign currencies, centered on the dollar, on July 2, and the baht has lost more than 20% of its value since then. The flotation was intended in part to make Thai exports more competitive.

Stephen Jen, a regional currency analyst at Morgan Stanley Asia in Hong Kong, said the bailout agreement is “an extremely important positive move” but “it doesn’t necessarily mean it’s an end to all the troubles.”

There are still several ways in which developments could go wrong, including political instability in Bangkok, failure to implement promised cuts in government spending, or the granting of too many loans to troubled financial institutions by Thailand’s central bank, Jen said.

Promised structural reform of the financial sector “will be difficult,” Jen said. “There will be a lot of kicking and screaming.”

In recent weeks, the Thai government shut down 58 troubled finance companies and ordered them to submit rehabilitation plans and seek mergers with stronger firms or banks.

Despite the announcement of details of the bailout, the baht fell slightly against the U.S. dollar on Monday, dealers said. At the close of Asian trading, the dollar was at 31.35 baht in the domestic market compared with 30.25 baht Friday. In the overseas market, the dollar strengthened to 31.175 baht from 30.25 baht Friday.

Dealers said the baht slid because of continued dollar buying from Thai corporations that have still to fully hedge against dollar debt exposure. Many companies are expecting their creditors to call in their loans instead of rolling them over, and they want to grab hold of dollars early in case the baht continues to weaken further.

Dealers said the $16-billion aid package brokered for Thailand by the IMF didn’t lift sentiment in the market because it had been expected.

Times wire services contributed to this report.