Thailand Seeks Economic Aid Package From IMF

Bowing to enormous pressure to seek an international financial bailout, Thai officials Monday agreed to seek assistance from the International Monetary Fund to cope with a worsening economic crisis.

Since the July 2 devaluation of the baht, Thailand has become like “a water tank with a leak,” Thai Finance Minister Thanong Bidaya told reporters in Bangkok, adding that the IMF can “help plug the hole.”

Although analysts have said for several weeks that Thailand appeared to have no choice but to seek an IMF-backed international bailout package, the Thai government has been reluctant to do so because of the stringent conditions that are normally attached to IMF help.

Thai officials had previously announced plans to announce an economic package on Aug. 5 that would address key problems, including how to strengthen the troubled banking system. It now appears likely that this package will be backed up with a credit line from the IMF and will contain austerity measures imposed by the IMF.

Hours after the decision to seek help, the governor of the Bank of Thailand, Rerngchai Marakanond, resigned out of “frustration” over the nation’s economic troubles, according to Bloomberg News Service. Marakanond had overseen the defense of the baht.

Thailand’s benchmark stock index jumped 5.3% on Monday to 680.67 on hopes that the bailout would boost the flow of funds into the market. Early today the index rallied another 1% to 687.78.

The decision to seek IMF help may have been triggered in part by a plunge in Thailand’s foreign exchange reserves, which have been spent heavily to defend the baht. Reserves are reportedly down to $16 billion, from $33 billion in May, which was itself a two-year low.

The baht was trading Monday at 31.88 to the dollar, down 23% since July 2. That level is “too weak,” Finance Minister Thanong said. Early today the baht strengthened to 31 to the dollar.

Monday’s decision, taken by a committee of economics officials, is expected to win full Cabinet approval today. Thanong said the expected arrangement with the IMF would include a line of credit. He gave no figures for the size of the package, but it is expected to be valued at billions of dollars.

“Probably the package itself would be addressed at dealing with the problem of nonperforming loans in the banking system, and the threat they pose of large-scale collapses among the financial companies,” said Tim Condon, economist at Morgan Stanley Asia. “There is a team from the IMF in Bangkok. They arrived [Sunday], ready to do these negotiations.”

Aides to Prime Minister Chavalit Yongchaiyudh floated a suggestion Monday that major foreign banks operating in Thailand grant a $6-billion credit line in return for being given greater access to the Thai market. Those banks include Bank of America, Citibank and Bank of Tokyo-Mitsubishi. They are currently restricted to a single branch.

Earlier this month, Japanese news reports suggested that Tokyo was seeking a bailout package valued at up to $20 billion, a figure many analysts say reflects the amount of help needed by Thailand. But Japan balked because of Thailand’s refusal to seek IMF aid.

The United States is not expected to play a role in the bailout. U.S. officials have suggested that Japan should take the lead, much as the United States did during Mexico’s 1994-95 peso crisis.

Successfully addressing Thailand’s problems would have significance throughout Southeast Asia because many of the region’s currencies have been buffeted by the baht’s devaluation.

Between 1985 and 1995, Thailand’s economy grew an average of 9% annually, one of the highest rates in the world. It slowed to 6.4% last year and has fallen further this year. Now, overextended banks facing a risk of insolvency are at the core of the country’s troubles. Several estimates place the nonperforming loans at about $30 billion.

Thailand needs to cut its government budget deficit and overseas trade deficit, stabilize its financial system and allow the baht to find a level where foreign capital is once again attracted to the country, analysts say.

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Bangkok’s Troubled Market

Thai stock prices soared Monday on news that Thailand will seek an IMF rescue package for the country’s battered economy. The key stock index in Bangkok leaped 34.09 points, or 5.3%, to 680.67. But the index still is down 45% from mid-1996. Monthly closes and latest: 680.67

Source: Bloomberg News