CONFUSION seems to arise amid the raucous calls for debt restructuring and outright debt moratorium. But the momentum that is gathering pace now is largely a process of internal corporate debt restructuring, which has been bolstered by a resolution of the Cabinet Tuesday to waive taxes hindering asset transfers or business and financial transactions.

The issue can be divided into three levels. At the international level, a question has been raised over how Thailand, as a sovereign country, should deal with its US$90 billion in external debts so that it may keep its creditworthiness and is credible enough to engage in international trade transactions. Remember we still need to import oil or buy pharmaceutical products or purchase materials for re-exports.

At the national level, corporate debt restructuring is about to begin seriously, boosted by a more favourable regulatory framework. Assume that 40 per cent of all the bank credit in the country have gone sour, there will be Bt2.2 trillion in non-performing loans that will need to be sorted out, restructured and re-activated so that some of them can become good loans.

At the local level, farmers and the rural folks have been saddled by Bt200 billion in indebtedness, created either by loan sharks or by borrowings from the Bank for Agriculture and Agricultural Cooperatives. A rally is taking shape, with a degree of political motivation, for the government to bail out the poor and not just the rich alone.

It is not a coincidence that the three debt issues, with varying complexities, have converged at this particular juncture when it appears that the economy continues to slacken with fears of worst-ever recession in the history of modern Thailand. Yet from the perspective of the Thai leadership, maintaining creditworthiness of the country in eyes of the international community is the most critical of them all.

Both Finance Minister Tarrin Nimmanahaeminda and his deputy, Dr Phisit Lee-ahtam, have made their stand clear that declaring a debt moratorium for Thailand's external debts amounts to a coroner's pronouncement of a dead body. For announcing a debt moratorium, they think, will irrepairably destroy Thailand's credibility and may deprive the country of foreign capital over the next 10 years during which it will be swimming in the sea of recession.

The International Monetary Fund also holds the same line, for a moratorium will amount to a failure of its support programme for Thailand and undermine its credibility. The IMF's primary task is to put market forces at work in the Thai economic system again.

In October last year, during the Chavalit government's tenure, an executive decree was hastily issued to guarantee the debts and deposits of all the domestic financial institutions. The implication of that decree is that all the debts of the financial institutions have been converted from private sector risks into sovereign risks.

With the Japanese banks accounting for about $37.5 billion of Thailand's total external debts, it is Japan that is helping Thailand out the most with the roll-over of the debts. Besides, most of their loans have gone to Thai-Japanese joint ventures. MR Chatu Mongol Sonakul, the Bank of Thailand governor, recently said that the government has succeeded in negotiating a roll-over of about 80 per cent of the external debts. The problem is how long can Thailand continue to roll over the external debts?

As for the external debts to non-financial institutions, Tarrin prefers the private companies to sort out their own problems.

The debts incurred by the financial institutions are the ones that matter most for, unlike other companies, banks or the financial institutions cannot default, otherwise they will trigger a loss of confidence and a run on their deposits. Some have argued, however, that if the foreign creditors don't take a hit, the Thai banks won't be able to take a hit or write off a certain amount of debts before a restructuring can begin.

There is also merit in the argument that if the private sector keeps on paying the external debts because the foreign creditors are going after it in a frenzy, it will never have enough liquidity to do business, hence the unending recession.

This problem is also linked to the local corporate debt restructuring that is about to get under way. In a debt re-scheduling, banks may agree to take a hit by 20 to 30 per cent of the loan, convert the debts into equity, install a new management, restructure the business and inject some fresh working capital to get the enterprise going again.

The new tax regime, approved by the Cabinet Tuesday, will facilitate this process, although the other regulations and judicial system have yet to be put to a real test on whether corporate debt restructuring really works in Thailand.

The Financial Sector Restructuring Authority is restructuring, or liquidating to be more exact, the Bt800-billion assets of the 56 insolvent finance companies. If the FRA gets Bt100 to Bt200 billion from the grand sale, it will be lucky enough.

Lastly, a rally of the Northeast poor is threatening to make its presence felt in Bangkok if the government fails to take the farmers' plight into consideration. It is fair to argue that since the government has bailed out the rich, why can't it bail out the poor too?

At this point, the government is not yet ready to address the indebtedness of the farmers because it is not a question of systemic risk but rather a social and political issue. In any event, in any bailouts, the money must come from somewhere.