Bangkok hauls itself back on to the rails
Jake van der Kamp
With every day that passes, more people can be heard to suggest that Thailand, having been the first Southeast Asian country to put itself into the hole, will perhaps be the first to pull itself out of that hole.
There are, of course, plenty of cautions to be heard on that score too. The deep recession Thailand is now suffering has produced enormous financial distress.
There is still a forest of vacant office blocks in Bangkok, the banks remain troubled and it may be two years before there is a return to real corporate earnings.
But the optimists begin to have some grounds for their hopes.
Two in particular are worth noting. They are the recent improvements in external balances and indications that the foreign-debt burden is being paid off.
Thailand brought itself low because for 10 years up to the middle of last year the Bank of Thailand (BOT) had practised a currency fix of 25-26 baht to US$1 while, for various reasons, maintaining domestic interest rates at much higher than US levels.
It was an environment that encouraged Thai corporations to borrow in US dollars. They got lower interest rates and they had currency protection from the BOT.
They could not use the US dollars in Thailand, but this presented little obstacle to them. They simply sold the dollars to the BOT for baht and the BOT had to oblige on each occasion at the exchange rates it had fixed. If it did not do so, its exchange rate fix would have been broken.
But this of course rendered it powerless to fulfil the first task of any central bank - controlling the amount of money in the system. By 1994, a big liquidity boom was on. Everyone was borrowing US dollars and, as so frequently happens when normal pricing mechanisms are distorted by this sort of thing, the money started to go to the wrong uses - excessive property development and fancy cars for instance.
The imports required for this produced an enormous current account deficit for many years, but no one was worried by it as long as foreign money kept pouring in to fill the hole. And it did. The net foreign liabilities of the banking system rose to as high as 25 per cent of gross domestic product as Thais shipped in the money.
But the foreign creditors finally grew alarmed and then the bubble burst last year. The money stopped coming, the overall balance of payments fell into a huge deficit and the currency fix broke, as no one wanted baht any longer.
So much for the sad history. Look at what is now happening. Thailand has cut its imports way back, with the result that on a six-month average basis the current account showed a surplus in April of almost 13 per cent of GDP. Even with money still flowing out, the overall balance of payments is almost back in balance at the moment.
And this outflow is finally starting to bring down the net foreign liabilities of the banks.
From 1.5 trillion baht in January it was down by April to one trillion baht. The burden is being lifted.
It is early days perhaps, but things are now moving the right way at last.