ALL attempts were made throughout 1996 and the first half of 1997 to avoid a baht devaluation, which would increase the cost of the US$60-billion worth of mostly unhedged corporate debt, wreak havoc on the financial institutions and bankrupt the economy. The irony is that a year after the baht was floated and lost almost 40 per cent of its value against the US dollar, local businessmen want the baht to weaken even further to boost exports.

Narong Chokwattana of the Saha Pattanapibul Group, the consumer products and manufacturing conglomerate, is among the most impatient voices, which also include academics who have become increasingly sceptical about the IMF-prescribed medicine Thailand has taken. He believes the authorities should drastically cut interest rates to prevent the real sector from going down the drain. By doing so, the baht should weaken and provide exports with a much-needed jump-start.

''Forget about inflation. In Argentina, inflation used to reach 3,000 per cent, but it did not mean that the authorities there had to raise interest rate to 4,000 per cent to curb inflation,'' Narong says. ''Interest rates can be kept lower than inflation. In Japan, the interest rate is about half a per cent, and inflation is minus.'' Narong adds that the authorities should not artificially prop up the baht because that will invite speculators to return and attack the baht.

Narong's comment is a fair representation of a growing body of criticism of the government's cautious fiscal and monetary policy, which has succeeded in stabilising the currency, controlling inflation and improving the external accounts but has dealt a blow to business and will lead to a contraction in the economy of at least 6 per cent this year.

Finance Minister Tarrin Nimmanahaeminda has explained it is not easy to satisfy every single quarter of the economy when his prime objective is to achieve macro-economic stability. At the heart of macro-economic stability is baht stability, the first order of business for the government.

''We cannot allow the baht to fluctuate without seeing any bottom like the currency of our neighbouring country [Indonesia]. If that is to happen, we won't be able to tackle the economic problems because there won't be any confidence. If Thais have no confidence in the local currency, they will shift the money out. That will close the door for any opportunity to tackle the economic problems. At any cost, we just can't allow that to happen,'' Tarrin says.

In mid-1998, a year after the baht was floated on July 2, the baht had tumbled by 39 per cent to the US dollar, the Indonesian rupiah 84 per cent, the Malaysian ringgit 39 per cent, the South Korean won 36 per cent, the Philippine peso 37 per cent, the New Taiwan dollar 20 per cent, the Japanese yen 19 per cent and the Singapore dollar 16 per cent.

Given this regional perspective, Tarrin believes the Thai baht has depreciated enough and there is no reason for it to lose any further value when compared with other regional currencies. The baht hit rock bottom on Jan 12 when it tumbled to 55.50 to the US dollar. At that time the turmoil in South Korea and Indonesia added pressure on the baht. Yet following the Thai government's determination to bite the bullet with the IMF programme, sentiment began to improve with the baht strengthening to 40 to the dollar in March, 39 in April and 39 in May.

A more stable baht opened the door of opportunity for Thai Farmers Bank and Bangkok Bank to issue new equity through private placements, which resulted in the raising of almost US$1 billion each in March and April, respectively. If these two big banks had failed in their international equity offerings, the casualties in the Thai economy would have been enormous.

After trying to decouple itself from Indonesia, Thailand could not avoid the ripple effect from the sagging yen in June when the baht dropped to 43 against the dollar. Lately it has stabilised at 41 to the dollar.

With a degree of confidence, interest rates have been on a downtrend. The overnight interest rate which peaked at 24 per cent in December has been on a steady decline. Last Thursday the overnight rate stood at 15.375. The Bank of Thailand's aim is to bring it down to the region of 14-15 per cent, but the move will have to be cautiously taken given the astonishing fact that Tarrin is even more hawkish than the Bank of Thailand in regard to interest-rate policy. Since inflation will be kept in check at 10.50 per cent, there is room for Tarrin to gradually bring down the interest rates.

If interest rates are brought down too hastily without taking into account the weakening currency, it will add to inflationary pressure. Inflation, to Tarrin, will affect Thai people over a broader spectrum. Social and political problems will be likely ill flare up and derail the entire stabilisation programme.

Pisit Lee-artham, deputy finance minister, says it is not the intention of the authorities to intervene in the foreign-exchange market to prop up the baht. The value of the baht is now 90-per-cent determined by market forces, he said. In March and April, the banking authorities stepped in to buy up dollars to prevent the baht from getting too strong, he added.

Will a weaker currency lead to more exports? Tarrin provides some interesting statistics. In 1998 the World Bank forecast world trade would grow in dollar terms by zero per cent. Thailand's export performance is likely to follow the global pattern. Thailand exports roughly 25 per cent of its goods to the US, 25 per cent to Europe, 25 per cent to Japan and 25 per cent to Asean countries. In the first four months of this year exports to Japan contracted by 16 per cent and to Asean by 22 per cent. On the other hand exports to the US grew by 18 per cent and to Europe by 16 per cent.

Overall, in dollar terms, exports fell by 2 per cent in the first four months of this year compared to the corresponding period of 1997. Tarrin's point is that since half of Thailand's export markets are facing the problem of falling demand or dwindling purchasing power, bringing the Thai baht down further is not going to boost exports, which have grown in volume and fallen in value.

''The problem of exports is not pricing but falling regional demand,'' Tarrin says. ''Competitive devaluation is not the answer to resolving the crisis. When Mexico devalued its peso, it could boost exports because it was the only country to have a weak currency.''

Too lax a monetary policy and too weak a currency will increase the debt burden of the country, undermine the confidence of foreign creditors, add to inflationary pressure and in the end make it impossible for interest rates to come down. Tarrin says it is impossible to keep interest rates below the inflation rate because that will signal Thailand is walking away from monetary discipline. There is a trade-off, because Thailand still must import oil, pharmaceutical products, fertiliser and electrical appliances. Where is the balance?

Moreover, apart from the risk of a recession in Japan and a yen crisis, both external factors beyond Thailand's control, Thailand is still suffering from a capital outflow. This makes it absolutely necessary to maintain a prudent monetary policy. In January 1998, the net capital of Thailand was a deficit of $1.427 billion, compared to a deficit of $1.664 billion in February. In March and April, the capital was in surplus of $625 million and $1.042 billion respectively. However, the surplus was a result of an inflow of semi-official money from the IMF and other international organisations, while the private sector still suffered from capital outflows.

Ultimately Tarrin argues that macro-economic stability is his foremost objective and it is now no longer a problem. He is much more concerned with the micro-economy, the need for corporate-debt restructuring, the entire transformation of the Thai economy and improvements in the regulatory framework necessary to win back the confidence of foreign investors.

Niramol Suriyasat, chairperson of Toshiba Thailand Co Ltd, agrees with the policy framework the government has been pursuing but complains the government is very poor in its public relations. ''I am very lucky to have heard and understood the policy you are implementing,'' she told Tarrin, ''but the government has failed to explain it clearly to the public. You have to issue a warning that we're heading into the turbulence: fasten your seat belts. Some passengers have never taken a flight, so they need a sound warning.

''You have done a good job so far. External factors are beyond your control, but the people are still confused, not confident about their future, particularly those that are unemployed. We need to know that the turbulence is ahead. The public are entitled to the facts.''