Top IMF Official Warns Thailand to Act Quickly

A top official of the International Monetary Fund said Thailand must quickly shore up its troubled financial system and cut government spending to defuse an economic crisis that has shaken currency and stock markets across three continents.

At a briefing for reporters Monday, Stanley Fischer, the IMF’s deputy director, suggested that Thailand is behaving foolishly by refusing to seek an IMF emergency loan, which would come with politically distasteful conditions.

“It seems to be hard for them to make very tough decisions,” Fischer said, speaking much more bluntly and openly than is customary at the fund, where officials have traditionally veiled their words in anonymity and vague phrasing.

The directness of Fischer’s remarks reflects the concern that has mounted at the IMF and at the U.S. Treasury over the last week and a half, as Thailand’s troubles have sent financial tremors throughout Southeast Asia, Latin America and Eastern Europe.

The IMF has primary responsibility for containing such crises, and the Clinton administration has been consulting with the fund because of fears that the turmoil could engender an economic slowdown in regions that have become major markets for U.S. exports.

(The Times reported last week that Japan, with IMF support, is seeking to organize a $20-billion international bailout that could stabilize economies in Thailand and the region. Developments on that effort could come this week.)

Monday, Indonesia’s rupiah became the latest victim of frenzied speculative selling, dropping as much as 7% against the U.S. dollar. The Philippine peso, Malaysian ringgit and Brazilian stock market have also fallen sharply since the Thai baht was devalued on July 2 after an attack by speculators.

Fischer stressed that the situation is unlikely to become as serious as the Mexican peso crisis of 1994-95, which also sparked selling in other emerging markets and plunged Mexico into a deep recession.

Although Thailand, like pre-crisis Mexico, has been running sizable trade deficits and has become dependent on short-term money from abroad, most of Thailand’s foreign debt is owed to private lenders by Thai companies, whereas in Mexico, most of the foreign debt was owed by the government, Fischer said.

Moreover, he said, another “critical difference is that Mexico’s growth rate, despite very impressive reforms, never got up to anything like that which we’ve seen in the Asian countries.”

“Whatever they [Thailand] may do,” he said, “whether it is with an IMF program or without an IMF program, it is critical that they put together a clear, complete package of measures.”

IMF loan recipients must abide by fund conditions, such as cutting spending and easy credit. Thailand stopped subjecting itself to IMF supervision more than a decade ago.