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Looking into the IMF offerings

 

Vatchara Charoonsantikul and Thanong Khanthong look at the state of the Chavalit government before it sought support from the International Monetary Fund, which is ironically being used as a basis for a political onslaught on the current administration.

IN July 1997, after the baht was floated, Gen Chavalit Yongchaiyudh, then prime minister, studied every possibility of raising US$10 million to $15 billion to fill the Bank of Thailand's depleted foreign exchange reserves.

He acknowledged the political risk and pain that was to be incurred from putting Thailand under the IMF support programme, which was made the last option.

Friendly nations like China, Japan, Taiwan and Brunei, who had pockets full of resources, could possibly help Thailand out. Two teams were quickly set up. Gen Mongol Amphornphisit, the supreme commander, led a delegation to China while another, led by Dr Thanong Bidaya, the then finance minister, and Rerngchai Marakanond, the then Bank of Thailand governor, went to Tokyo.

Mongol returned with good news. The politburo was willing to help Thailand with a $10 billion package because China was apprehensive about the threat of US dominance in the looming regional financial crisis. Later, China, with about $108 billion in foreign exchange reserves, declined to hand over the promised $10 billion following a protest from Ju Rongji, then governor of the State Bank of China. Ju, who is now premier, was smart enough to insist that China would only help Thailand under a multilateral framework rather than assisting the country through a bilateral support. In other words, Thailand would be better off seeking support from the IMF.

Thanong and Rerngchai, both educated in Japan, could understand why they also came back empty-handed. US officials were working behind the scenes to lobby Japan against providing financial support for Thailand. They preferred that Thailand enter the IMF programme and be punished for its crime of crony capitalism. Japan, who has never had the nerve to stand up to the US on any large issue, caved in. Other donor countries also made a retreat. They all said the same thing: You should enter the IMF programme first and then we would provide financial support.

By late July, it was clear to Chavalit that the only way out for Thailand was to apply for the IMF programme. It was no secret that Chavalit's ties with the US were not good. So Thailand's IMF programme, designed with significant input from the Treasury Secretary Robert Rubin and his deputy Lawrence Summers, was harsh and modelled on the 1995 bail-out for Mexico.

However, the US refused to give Thailand a single cent. The Thai crisis had been underestimated and Japan, which was facing a banking crisis, would be too weak to drag Thailand out of recession.

After the collapse of the Thai currency peg system, Rerngchai was set to handle the crucial task of negotiating with the IMF. A delegation of the fund arrived for a preliminary review of the Thai crisis. By then, it was clear that Rerngchai had lost all political support. Chavalit, obviously, wanted him out and removed him with M R Chatu Mongol Sonakul, the then permanent-secretary for finance.

In his memoirs, Rerngchai said he was depressed over being removed from office before he completed his negotiations with the IMF. Personally, he was hurt by his indecisiveness in altering the foreign exchange regime, which led to the currency collapse and a depletion in foreign exchange reserves. Yet he wants a chance to repair his reputation by sticking through the transition period.

When Rerngchai was told of his removal by Thanong he could help but feel that he was being made the scapegoat. The powers that be had nailed him and wanted to keep the credit for Thailand's recovery. It was believed then that growth would resume in 1998 after Thailand underwent the shock therapy prescribed by the IMF.

Chavalit and his advisers did not quite understand the implications of swallowing the IMF pill, which would shake up the entire financial, economic and legal foundation. They thought that confidence in their administration could be restored with a badge from the IMF. And they might have been wrong, because clearly the IMF was there to indirectly force their resignations.

Next: The trauma Dr Chaiyawat Wibulswasdi, former deputy governor Bank of Thailand, underwent when dealing with the IMF.

 

 

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