Thanong, IMF harmony fails to end doubts
The Thai Government has reached 'complete agreement' with the International Monetary Fund over the goals and direction the economy should take, according to Finance Minister Thanong Bidaya.
Officials and Bangkok-based analysts agreed. Several argued that foreign-market rumours were simply wrong in saying the IMF was already disillusioned with the Thai authorities' ability to implement a tough rehabilitation plan.
But there are indications the fund's officials would like the Thai Government to speed up cutting out the dead wood and restructuring the economy.
'We know the pain is going to get worse before we move into a strong recovery. Our fear is if we don't work quickly enough, the pace of destruction might be faster than the recovery,' one source said.
The key problems most financiers have in mind are dealing with the mountain of bad debt in the financial sector and the drying up of liquidity across the economy.
Mr Thanong echoed the financial community consensus that confidence - a prerequisite for a real recovery - would not return until Thailand had demonstrated how its bad debt mess would be sorted out.
The previous strategy of pumping money into drowning local lenders, telling everyone not to panic and hoping for the best has clearly failed.
More than half the country's 91 finance houses - 48 companies - have been closed despite receiving a 430 billion baht (about HK$96.32 billion) injection from the central Bank of Thailand.
But the suspension of these companies, combined with a widespread loss of interest on the part of both local and international lenders in doing business in Thailand, has created a very severe liquidity crunch.
'The authorities have eventually started doing the right things but they are still moving too slowly. This country is dying on its feet,' a Thai merchant banker said.
From various official statements, the government's strategy now appears to be: have the big half-dozen Thai commercial banks - the beneficiaries of a flight to quality - recycle their 'surplus' liquidity to ease the immediate pressure on thirsty firms.
focus any government and private lending on exporters to try to generate more foreign currency earnings as rapidly as possible. This could, in turn, bring some stability to the baht and therefore a measure of confidence to overseas investors.
finally, the central bank wants Thai lenders to increase their bad-loan provisions in the hope investors will consider this more realistic and so reassuring.
A strategist at a Thai investment bank said: 'These policies are fine - recycle money, help exporters, increase provisions - all good. But we do not have all the time in the world. We are sick . . . we need more urgent treatment.' Mr Thanong said the World Bank had agreed to help mediate with foreign creditors, who are owed about US$73 billion by the private sector.
'One of my key concerns is to make sure foreign creditors do not desert us,' he said.
There is the suspicion the authorities are still clinging to the hope exports will pick up enough fairly soon to start pulling Thailand from the depths of its crisis.
One bank analyst with an international broking house said increasing bank and finance house provisions smacked of trying to hide the problem in the hope the bad-loan situation would start to ease.
'The best way would be to come clean and create a 'bad bank' to buy up the bad assets [such as in Sweden] . . . everyone will get some liquidity from their assets and they will be able to write off the losses from their capital,' the analyst said.
'That will inevitably mean you will end up with smaller companies but cleaner balance sheets that will attract foreign creditors . . . and allow those companies to recapitalise.' The alternative is to do it 'the Japanese way' by delaying a full-blooded clean-out of the financial sector for years - and by doing so, delay the economic recovery too, the analyst said.
Mr Thanong said such a scheme was now being seriously considered.
One reason the Bank of Thailand may be dilatory in cutting the bad debts in financial institutions is that it is saddled with bold - and probably unnecessarily generous - promises to protect the assets of all depositors and most creditors in the financial system.
Any dramatic clean-out is likely to leave some corporate blood on the floor, yet the IMF has specifically forbidden Thailand from injecting any of the $17.2 billion in rescue monies into failed companies.
'This may be a reason, but it is not an excuse. This must be dealt with soon - whatever the cost,' the bank analyst said.