Japan Organizing Thai Bailout

Japan, confronted with tottering financial markets across Southeast Asia triggered by devaluation of the Thai baht, is scrambling to organize an international bailout that could stabilize economies in Thailand and the region.

Japanese and U.S. sources said Monday that a $20-billion loan package is taking shape for Thailand that would be led by Japan and supported by the International Monetary Fund.

The U.S. Congress was briefed by Treasury officials on the volatile Southeast Asian situation. But despite Japanese media reports that the United States would also contribute, U.S. officials called that unlikely and described Thailand’s crisis as principally Japan’s responsibility.

A Japan Finance Ministry spokeswoman confirmed Monday that Japanese officials “have been in close contact with the Thai government, and we’re trying to deal with the situation appropriately.”

“However, they [the Thai government] haven’t made any official request, so I can’t make any specific comment at this point,” she added.

U.S. Treasury officials, who orchestrated a controversial $50-billion international bailout of Mexico in 1995, to which the United States contributed $20 billion, said only that they are monitoring the situation.

But in the briefing for the House Banking Committee, Treasury officials indicated that Thailand’s crisis could be handled without direct U.S. involvement and that there appeared to be “no systemic risk to the international financial system as a whole,” according to a key congressional source.

The senior congressional staff member confirmed that Thailand probably needs $20 billion in foreign assistance. He said Thailand’s present fiscal problems--the result of slowing export growth and the crash of its inflated real estate and banking sectors over the past six months--are nowhere near the magnitude of Mexico’s in 1994.

The source said Washington was prepared to throw its support behind a bailout involving the IMF, the World Bank and other international financial organizations.

“It appears Treasury believes that this could be managed through the IMF and other international financial institutions in negotiations with the Thais, if that’s the way the Thais want to go,” he said.

The ripple effect of Thailand’s July 2 devaluation continued Monday. The Thai baht and Indonesian rupiah fell to record lows against the dollar. The Malaysian ringgit fell to a 17-month low, and the Philippine peso weakened further.

With slower export growth and rising trade deficits across much of the region, analysts say it isn’t surprising that speculators have bet on widespread devaluations. Weaker currencies would help make Southeast Asian exports more competitive--especially versus China’s export machine--but devaluation also slashes a country’s purchasing power.

Although the issues now are regionwide, analysts say the core of the problem is Thailand.

“To me, the key here is Thailand,” said Tim Condon, economist at Morgan Stanley Asia in Hong Kong. “If we had no more worries about Thailand, then I think the region would stabilize quickly.”

It is natural for Japan to take the lead in trying to avert a situation in Thailand similar to the Mexican peso crisis of 1994, analysts say.

“Japan is special in Southeast Asia,” Condon said. “It’s been generally the largest source of foreign direct investment. It’s a major trading partner on both the export and import side. Commercial ties are very strong. You don’t need to look very far to see why the Japanese government would be interested in macroeconomic stability in Southeast Asia.”

Japanese companies, notably auto firms, already employ more than 315,000 people in Thailand, or 7% of the manufacturing workers. About 300 Japanese firms have announced plans to invest another $3.5 billion in plants and equipment there in the next three years.

Japan is also a major creditor to key Southeast Asian nations, including Indonesia, Thailand and the Philippines, through government and private bank loans, and any spreading economic crisis could call into question timely repayment of those loans.

Japanese banks have their own problems, with an estimated $500 billion in bad loans on their books. But the scale of the Thai crisis is not considered great enough to significantly add to Japanese banks’ loan problems.

Thai Foreign Minister Prachuab Chaiyasarn and Finance Minister Thanong Bidaya are to visit Tokyo on Thursday to discuss a bailout package, according to Japanese news media. The Nikkei Shimbun, Japan’s leading financial daily, has reported that Japan may supply 50% to 60% of a total of $20 billion in emergency loans supposedly being sought by Thailand.

Thai Finance Ministry Secretary General Chatumongkol Sonakul confirmed in Bangkok on Monday that Thailand may seek more assistance from the IMF. “At the moment, the assistance we have from the IMF is purely technical,” he said. “However, we do not rule out financial assistance from the IMF. The Bank of Thailand is looking at every avenue possible.”

A $20-billion international bailout would equal about 10% of Thailand’s gross domestic product and would presumably go toward restructuring the ailing banking system, Condon said. Thailand’s central bank held about $33.3 billion in foreign reserves at the end of May, but this sum was reduced by its unsuccessful attempt to defend the baht, and analysts now place the figure at about $20 billion.

Thailand has apparently not yet requested aid from the IMF, which dispatched a team to Bangkok over the weekend. An IMF spokesman said the team is providing advice on monetary policy and fiscal reform but is not negotiating with the Thai government on a bailout program.

Holley reported from Tokyo and Iritani from Los Angeles.

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A Time of Uncertainty

Southeast Asia’s central banks are struggling to keep speculators from betting against their currencies after Thailand and the Phillipines were forced to devalue the baht and the peso, respectively, and economic jitters. Other nations in the region face the tough choice of raising interest rates to bolster currencies, which chokes off growth, or letting their currencies weaken, which slashes a country’s purchasing power. A look at the vulnerable countries:

THAILAND

The economy, currently the most vulnerable in Southeast Asia, is growing at its slowest rate in a decade. A plunge in real estate values has caused problems in banking and other sectors, triggering the July 2 devaluation of the baht. Private consumption and investment, industrial production and export growth have slowed. Inflation increased from 3.3% in 1993 to 5.9% last year.

PHILIPPINES

Officials bowed to market pressure Friday and effectively devalued the Phillipine peso.But growth has been strong, with the gross national product posting a 6.8% gain in 1996. Increased foreign investment and a strong recovery in personal consumption helped push the economy forward. The agriculture and services sectors have recovered.

INDONESIA

Helped by food price stability, inflation is about 6.5%, its lowest level in a decade. Domestic investment grew at an unprecedented rate in 1996, notably in real estate. Policymakers, however, are nervous about the increasing trade deficit, which stands at record levels.

MALAYSIA

After a hectic eight years of economic expansion, growth slowed to 8.2% in 1996, led by a substantial reduction in the growth of manufacturing exports and the resulting slower growth of export-oriented industries. Devaluation of the ringgit would boost exports.

SINGAPORE

The economy has slowed a bit because of a decline in export growth prompted by a drop in world demand for electronic products and components. The retail sector was lackluster amid slower growth in tourist arrivals in 1996. The labor market remained tight last year as employment rose by 101,000. Inflation remained a miniscule 1.4%.

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Source: Steve Parker, chief economist, The Asia Foundation; wire reports.

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Researched by JENNIFER OLDHAM / Los Angeles Times

FAR-REACHING IMPACT

Emerging-market countries worldwide are feeling the impact of Southeast Asia’s currency crisis. D12