IN A panic reaction to the looming economic depression, the Chuan government has refined its stimulus package, equipping it with 25 measures, for fiscal 1999 to stem the free-fall of the economy in the second half of the year.

The package, which was approved by the Council of Economic Ministers Monday, is designed to boost cash flows for investment, restructure debt-ridden financial institutions and create emergency jobs, especially in rural areas.

Under the fiscal stimulus, the government plans to raise investment by state enterprises from 1 to 2 per cent of the gross domestic product (GDP). This will result in an injection of another Bt50 billion into the economy.

Overall, the state enterprise budget deficit would total Bt200 billion of the investment project. In total, the government plans to boost its deficit spending from the Bt875 billion budget by 3.5 per cent of the GDP.

Moreover, the government will inject US$200 million and another $400 million respectively to create emergency jobs in the farm sector and to restructure the agricultural sector in the long run.

In the industrial sector, some $122 million will be injected on top of a Bt100-million fund to support industrial restructuring at the factory level. Finance Minister Tarrin Nimmanahaeminda also hinted at further relaxation of the monetary measures to boost the economy in view of the largely subdued inflation.

The question is whether the stimulus package is enough to avert the economic crisis, which has moved from a recession into a depression. Analysts said the package, which will form the basis for negotiations between the Thai government and the International Monetary Fund, may be too little and too late.

Dr Somjai Pakkapatvivat, a well-known political science professor from Thammasat University, said the deficit spending should help stimulate the economy, but it depends on how the money is used. ''If it is used largely in infrastructure investment or in the private sector, then it should stimulate the economy. If it is used for other purposes, then it will be a problem,'' he said.

From the outset, both the monetary and fiscal policies were harshly squeezed by the support programme for Thailand designed by the IMF. Interest rates were kept high at 24 to 25 per cent to stabilise the plummeting baht. The fiscal stance was tightened to achieve a 1 per cent surplus of the GDP in order to bring down the current account deficit. The fiscal surplus was also earmarked for meeting the restructuring costs of the financial system. Both harsh measures amounted to a shock therapy, sending the Thai economy into a tailspin.

Unlike the Latin American economies, the Thailand crisis stems from over-investment in the private sector. Since the GDP is a combination of domestic consumption, investment and government spending, the IMF programme should have focused on tackling the over-investment and the consequential banking crisis in the economy instead of squeezing government spending and depressing consumption.

It was not until February this year, in the third letter of intent, that the IMF agreed to soften its stance on Thailand's fiscal policy after it witnessed a severe deterioration in the economy. The IMF agreed to let the Thai government post a deficit spending of 2 per cent of the GDP. Tarrin was too preoccupied with stabilising the baht and tackling the financial sector to take a more serious look at the economic recession. Both he and the IMF were too confident that foreign capital would return to pave the way for the Thai economic recovery following Thailand's adoption of harsh measures to clean up the system.

In the absence of appropriate stimulus measures introduced then, the economy continued its free fall, exacerbated by the regional turmoils emanating first from Indonesia and now Japan. The financial crisis has effectively cut Thailand and Asia off from the rest of the world.

The pain of the Thai economy can be witnessed by a turnabout in the current account deficit, the flows of goods and services. From a current account deficit of 8 per cent of the GDP, Thailand has succeeded in squeezing demand, largely imports, until it is now achieving a current account surplus of $1 billion a month. In the fourth letter of intent, completed in May 1998, the current account surplus was forecast to reach $8.5 billion this year, equivalent to 6.9 per cent of the GDP. But the trend is that the surplus might widen to $11.5 billion this year.

To explain it in layman's term, in 1996 Thailand was spending Bt108 from its own savings of Bt100. The extra Bt8 was the current account deficit financed by foreign borrowings. With the current account surplus at 6.9 per cent this year, Thailand will be spending about Bt93 from its savings of Bt100. The disappearance of Bt15, between 1996 and 1998, is the symptom of the liquidity crunch that is strangling the Thai economy.

The fourth letter of intent projected the economic contraction to reach 4 to 5.5 per cent this year. Last Friday, the Bank of Thailand estimated the contraction at about 6 to 7 per cent, compared to 8.5 per cent by Bangkok Bank.

Most foreign research houses believe the contraction to be at a double digit figure. Dresdner Kleinworth Benson forecast in May that the contraction would hit 11.7 per cent this year and 7 per cent in 1999. ''I am afraid that that's still an optimistic view. Our forecast is at the low-end of the consensus,'' said Russell Kopp, head of research at Dresdner Kleinworth Benson. To him, the economy is simply undergoing a severe correction, with a breakdown of the payment system and the billing system. Moreover, the banking system is also a step away from being nationalised.

However, Kopp showed his support to what the Chuan government has done so far, saying that all the measures put in place so far represent an incredible effort to put the economy back on track in the long run.