SPEND, Spend, Spend. That is the only message the Thai government wants to loudly send in its quarterly review of the International Monetary Fund's support programme.

With an extremely lax monetary policy, more robust fiscal expansionary programme and tax-cut package, the government is using all its ammunition to bring about economic recovery.

These are desperate moves aimed at boosting domestic demand and jump-starting the country's moribund economy following dashed hopes that foreign capital would return and exports would rebound.

The poor result of the recent Financial Sector Restructuring Authority (FRA) auction of the assets of 56 defunct finance companies also reflected a lack of interest by foreign investors due to the uncertain outlook for economic recovery.

On the monetary front, interest rates have been forced down to an abnormal level, unseen in the history of Thai monetary policy. Last week, the central bank pumped some Bt7 billion into the system, resulting in the repurchase rate dropping to an historic low of 0.9375 per cent at one point. Overnight interbank rates have hovered at around 2 per cent this year.

''We really want interest rates to come down to the lowest possible level insofar as they don't affect macro-economic stability,'' said Dr Achana Vaikhuamdee, chief economist of the Bank of Thailand.

''We want low interest rates to stimulate consumption, at least in the short-term.''

But questions are being asked about how long Thailand can maintain this abnormally low interest rate environment without harming its balance of payments. This is because there is a risk of capital outflow, with investors shifting their low-yield baht assets into more attractive US dollar assets.

Dr Prasarn Trairatvorakul, deputy secretary-general of the Securities and Exchange Commission, warned of such a dangerous scenario, pointing out that the Thai interest rate in real terms (inflation-adjusted rate) stayed at 2.25 per cent in January compared to the US dollar interest rate of 3.29 per cent.

A correction is imminent as there is no way Thai baht assets will command a higher premium than US dollar assets.

The seventh letter of intent (LOI) agrees that the Thai government should add another Bt53 billion, equivalent to 1 per cent of the country's gross domestic product (GDP), to its previous fiscal deficit spending target of 5 per cent of GDP. Overall, more than Bt300 billion from the government's coffers will be injected into the cash-strapped economy, although accelerating the disbursement process has proved to be a big problem.

Of the Bt825 billion budget ending Sept 1999, less than a third has been disbursed, reflecting bureaucratic inefficiency in spending the funds to meet the target. In fact, 60 per cent of the budget should have been disbursed by now if an appropriate schedule is to be maintained.

But the LOI fails to spell out the tax-cut measures aimed to put more money into the hands of Thai consumers because they will not be submitted for Cabinet approval until March 30.

The fiscal stimulus package, worth some Bt77 billion, will be a balanced mix. The government is out to please Thais, giving them something to take home and to spend.

Personal income tax will be cut across the board by 2 per cent, while the value-added tax will be slashed from 10 per cent to the pre-crisis level of 7 per cent. The excise tax will also be reduced to an extent. These measures are aimed at creating a sharp psychological impact to encourage people to spend their way out of the recession.

The LOI offers a subtle message on the macro-economic outlook for Thailand, which has been steadily improving. The baht has stabilised at Bt37-plus per one US dollar; interest rates have come down sharply; inflation has been brought under control at 2.5 per cent; the current account surplus will be sizeable at US$12 billion, equivalent to 9 per cent of GDP; and foreign exchange reserves will be boosted to US$32-US$34 billion by the end of 1999.

Absent from the LOI, however, was an assessment of the prospects for economic recovery, even though it insisted on projecting an economic growth target of 1 per cent for this year.

There are also a number of unsettling issues that have not been thoroughly discussed. These range from disappointment in the pace of domestic demand recovery, economic weakness in Japan and the region, the slow pace of corporate debt restructuring, the failure of banks to recapitalise adequately, the continued rise in the level of non-performing loans in the banking system, and the collapse of the credit system which has yet to be restored.

A specific time-table to accomplish the reform of the financial sector is provided, with the Radanasin Bank expected to be sold to foreign investors in the next few weeks. Privatisation of the Bangkok Metropolitan and Siam City banks is expected to be completed by October.

Moreover, the six private banks will come under further scrutiny regarding their recapitalisation plans. No adjustments to the Aug 14th Banking Restructuring Programme have been made.

Significant progress has been achieved through legislative reforms, with key amendments passed on the Bankruptcy Law, the new Bankruptcy Courts Law, two foreclosure laws, the Corporatisation Law, and the Condominium Act.

The current parliamentary session has been extended to facilitate deliberation of the Foreign Investment Law and amendments to the Land Code and new Lease Act. Once this has been completed, Thailand can really claim to have modernised its legal system, which has so far impeded structural reforms.

Under the LOI framework, the next phase will involve micro-economic management to lift the economy out of recession.