Rubin urges adherence to IMF
US TREASURY Secretary Robert Rubin Tuesday warned against any hasty move to loosen the grip on monetary policy, essentially put in place to stabilise the Thai currency, enhance external debt repayment capability and combat inflation, arguing that a lower interest rate environment does not necessarily bring about a resumption of normal bank lending.
''In Japan, even though the interest rate is about half a per cent, banks extend no credit,'' he said.
Rubin, who was on a 24-hour visit to Thailand as part of his regional whirlwind tour, was responding to questions posed to him by students from Chulalongkorn University's Sasin School of Business Administration, where he Tuesday addressed US views on the Asian financial crisis.
He stressed that if the countries in the region fail to stabilise their currencies, they will risk facing a further deterioration in their economies than when the crisis started out, for the weak currencies will undermine confidence and erode their ability to repay the external debts and to control inflation.
Rubin said so far the International Monetary Fund (IMF) programme in Asia has been individually geared toward each country without a specific formula, although the focus has been placed on structural reform, which is very important to rebuilding confidence.
''The crisis, as you know better than anyone, has led to enormous hardships for the people of Thailand and the region. However, these hardships and economic difficulties are a product of the crisis, not of the reform programmes,'' he said. ''The reform programmes are a response to the crisis and economic circumstances, in my judgment, would be vastly worse and the hardship would last for far longer without effective reform.''
Apart from the institutional structural reform, the IMF support programme for Thailand, however, is one of cautious fiscal and monetary policy, with gradual loosening of the government spending and lowering of the short-term interest rates to take into account the worse-than-expected economic contraction.
Rubin did not make it clear as to when it is appropriate to depart from the cautious fiscal and monetary stance in the event of a severe recession, urging Thai authorities to stick to the course designed by the IMF. Simply bringing down the interest rates, he suggested, will not resolve the overall economic crisis, which is a complex issue and needs to be tackled through strong structural reforms, including the banking and financial system restructuring.
Rubin joined US President Bill Clinton in a historic visit to China before spinning off his schedules to cover Malaysia, Thailand and South Korea. Tuesday he called on Prime Minister Chuan Leekpai at Government House to exchange views on the progress of Thailand's economic reform efforts and the regional economic crisis. He left for South Korea Tuesday.
Chuan told Rubin that although confidence towards Thailand has been restored to a certain degree, challenges still lie ahead with the prospects of a deteriorating economy between now and the end of this year, during which the economic woes will be most critical and painful.
Chuan also added that the crisis will affect the social fabric, prompting the Thai government to work on a social safety net through a deficit spending of about Bt50 billion in the 1999 fiscal budget. About half of this amount has been earmarked toward emergency job creation to relieve the social pressure of unemployment.
Rubin praised Chuan and his government for their commitment to following the economic stabilisation policy, including the successful efforts so far to stabilise the Thai baht, which he said is a right policy. The Thai reform efforts, he added, have bolstered confidence among the world's financial markets, including New York, London and Tokyo.
Rubin also spoke about his trip to China, where top Chinese officials have confirmed that they will not devalue the yuan which might spark off a second round of Asia crisis. Rubin's attention, however, appears to be more focused on Japan, which has been rapped by him and other top US administration officials so far for its inadequate economic reform and failure to stabilise the yen. Rubin said Japan should do more to reform the economy, restructure the banking system, open up the domestic market, stimulate the domestic economy, and achieve a more stable yen.
The economic efforts of Thailand and other countries have been made much more difficult and complicated by the recession, which is now under way in Japan, Rubin said.
Rubin also said that the United States is willing to support additional IMF funding for Thailand beyond the US$17.2-billion rescue package, if necessary. Sources said Rubin has personally pledged to Finance Minister Tarrin Nimmanahaeminda that the US will back Thailand if it faces an unexpected worst-case scenario of an economic meltdown, for Thailand is recognised as a frontline state.
Tarrin, however, denied that there was any specific discussion about US bilateral assistance to Thailand in the event that the crisis becomes worse than expected.
BY THANONG KHANTHONG