The baht is sinking not floating, touching a Bt30 level against the US dollar. The failure of the government to table a comprehensive package to tackle the financial crisis will further add to the downward pressure on the baht. The currency woes in the Philippines, Malaysia and Indonesia that followed the float have confirmed fears of a domino effect. And many more will have to fall.

If the Thai finance sector crisis is not adequately addressed, it will spread into the banking sector. Already there is a flight to quality. Local deposits have been shifted from commercial banks to foreign bank branches amid rumours of a looming banking crisis. Rumours abound, only to be subsequently substantiated.

Foreign lenders have been deeply agonised by the government's recent introduction of iron rules to force mergers and acquisitions among the 16 most beleaguered finance companies. Among the new rules is a command to force bankruptcy upon the ailing companies, so that creditors will have no rights to reclaim their loans.

The present bankruptcy law will be by-passed. Ranking of debts will be ignored. ''It is the biggest misjudgment of the government to all of a sudden try and change the rules of the law," said a country manager of a foreign bank. ''We are very appalled by the abolition of the present regulatory regime in favour of the new rules, which are even worst than martial law."

Some quiet diplomatic manoeuvring is under way, while lawyers have been assigned to interpret the new rules. Embassies in Bangkok are lobbying the government on behalf of the foreign banks adversely affected by the four recently introduced executive decrees.

A warning signal has been flashed: If the regulators fail to fairly address the debt status of the 16 ailing firms, some of whom have huge debt exposure to foreign banks, it will further undermine confidence.

Since Thailand depends on foreign capital to finance its current account deficit and to prop up its currency, it will need to guard the interests of foreign creditors. Failure to do so will deter foreign banks from further providing credit to companies, who are being strangled by the collapse of the credit system.

The baht crisis is a by-product of the financial sector crisis. So even after the Bank of Thailand bowed to the pressure by abandoning its 13-year-old fixed exchange regime, it still has to cope with some Bt1 trillion in non-performing loans (NPL) in both the finance and banking sectors. Some Bt300 to Bt400 billion in fresh capital will be needed to be put aside as reserves. The money will have to come from somewhere.

The banking regulators still want to sit on this mess as if it were a big secret, although the news of NPL figures have made their way to Mars. Fixing the NPL situation will inevitably require capital from overseas. Yet there are few credible names accompanying the list of foreign institutions, which have agreed to bail out the 16 ailing finance companies.

After the collapse of Barings investment bank in 1996, ING Bank of the Netherlands stepped in immediately with bail-out capital of about Bt50 billion. The next day Barings, which has since changed its name to ING Barings, continued operating with relatively few disruptions.

It is not likely the Malaysian or Taiwanese names, which dominate the partners of the ailing finance firms, will have the magic touch of ING Bank. At this stage, they have simply signed a memorandum of understanding to participate in the recapitalisation of the ailing Thai firms. Full commitment may not materialise.