THE Bank of Thailand will put an end to the disastrous saga of the Thai baht defence, which led to the rout of the currency peg system and an economic collapse, after it settles all of its US$1-billion outstanding debts in the offshore forward market with the speculators later this month.

''We still have $1 billion in the net offshore forward position and we plan to settle all of it within this month,'' said a senior official of the Bank of Thailand.

By doing so, the BOT will deliver $1 billion to its offshore counter-parties in exchange for Bt42 billion committed a year ago. This has resulted in a gigantic demand for the baht in the offshore market -- causing the interest to skyrocket to 20 per cent compared to the domestic rate of about 10 per cent in Thailand.

''To get hold of the baht for settlements, the offshore players can either borrow the baht, which drives up the interest rate, or sell out the US dollar for the baht, which pushes up the value of the Thai currency. For this reason the gap between the offshore rate and the onshore rate has been widening at around 10 per cent,'' a treasury dealer at an American bank said.

After Thailand sought a $17.2-billion rescue package from the International Monetary Fund, it was forced to publicly reveal its net forward position, which reached a staggering $23.4 billion as of Aug 22, 1997.

Of these foreign exchange swap contracts, which were due over the next 12 months, offshore obligations accounted for $14.80 billion and on onshore obligations $8.6 billion.

The Thai baht suffered from a panic run when this net forward position was disclosed for the investors immediately recognised that the BOT, which floated the baht on July 2, 1997, had depleted its reserves and the country could default on its dollar debts. With the bail-out credit from the IMF, the central bank has been able to rebuild its reserves and aggressively settle its forward position.

In August 1997, the BOT decided to roll over the swap contracts, built up in the mid-May defence, for fears that it might not have enough dollar reserves to support the balance of payments since at that time it had not yet received the stand-by credit from the IMF. By 1997 year-end, the net offshore forward position stood at $8.8 billion as a result of the settlements by $7 to $8 billion in November.

It was not until April and May 1998 that the BOT became more comfortable with its net offshore forward positions after it had rebuilt reserves by buying the dollar in the foreign exchange market. In July, the Bank of Thailand's foreign exchange reserves reached $26.8 billion.

Tuesday the baht was higher to Bt41.67 against the dollar from 41.725 on Monday. It did not seem to suffer negative impacts from the devaluation of the Russian rouble nor the bad news from Hong Kong, where the monetary authorities had been taking on the hedge-funds in a bitter war since last Friday.

The rouble was traded at 6.885 to the dollar on the Moscow Interbank Currency Exchange Tuesday, dealing a blow to several panicky investors who snapped up the dollar at 8 or 9 following the announcement of the devaluation on Monday. However, the rouble market is small and is not likely to have a significant impact on Thailand and this region.

But the bad news from Hong Kong is going to have a bigger impact on Thailand and the region. Last Friday the Hong Kong Monetary Authority intervened in the stock market for the first time to take on the hedge-funds as the stocks sank to a five-year low.

The Hong Hong authorities have been buying up the blue-chip stocks to tackle the currency manipulation by those who had built up large short position in the stock index futures. The hedge-funds have been selling out the Hong Kong dollar, which pushes up the interest rates. Higher interest rates trigger a fall of the stock market where the hedge-funds can buy stocks cheaper for settlements.

Analysts said there were signs that the Hong Kong authorities were buying such blue chips as HSBC Holdings plc, Hong Kong Telecom Ltd and Sun Hung Kai Properties Ltd.

''There is no aggressive type of buying intervention, they seem to be just trying to keep things stable,'' said South China Brokerage vice-chairman Howard Gorges, quoted by Agence France Presse.

Gorges defended the government's intervention last Friday, saying sometimes ''unorthodox methods'' are needed when national interest was being undermined. ''As long as they can make money, then frankly they will continue, they don't care if Hong Kong sinks or swims,'' he said referring to the speculators.