Growth will touch 3-4%, says IMF

August 21, 1999 -- THE International Monetary Fund (IMF) has revised upwards the growth of the Thai economy in 1999 to 3-4 per cent, reflecting a recovery after two years of crisis, said Ranjit Teja, the head of the IMF mission to Thailand, yestrday.

But Teja, who is based in Washington, DC and is in charge of the Thailand programme, said that despite the recovery the problems were not over yet as Thailand would need to address the bad debts in the banking system and proceed with financial-sector reform to ensure the recovery was sustained next year and beyond.

Teja and his team have just completed a review of the IMF support programme for Thailand, which will form a basis for the eighth letter of intent. Thailand is scheduled to draw about US$500 million from the Fund once its executive board approves the letter of intent in September or October this year. So far Thailand has drawn $14 billion from the $17.2-billion rescue package put together in August 1997 after the baht crisis.

Meanwhile the IMF's representative for Thailand, Reza Mogdaham, is completing his two-year assignment and will be moving back next week to Washington. He will be reassigned to work on the Indonesia programme.

Replacing Mogdaham is Shogo Ishii, deputy chief of the IMF's Policy Development and Review Department. In August 1997 Ishii was closely involved in drawing up the rescue package for Thailand.

Teja expressed satisfaction with the way the Thai economic recovery was progressing, saying that growth of 3-4 per cent would be achievable, following his discussions with the Thai authorities.

In a previous letter of intent, the IMF projected Thailand's economic growth at 1 per cent. Subsequently, with improvements in the economy, it expected growth to be in the range of 1 to 2 per cent, which at that time was criticised by local economists and analysts as being over-optimistic.

The Thai recovery, Teja added, is supported largely by the demand side or domestic consumption, from a pick-up in consumer spending to manufacturing and even imports.

Although the credit system has not yet been restored and banks are still reluctant to lend money, the economy will manage to stage a recovery because demand has been boosted by government expenditure and economic stimulus measures.

''The Thai economic crisis was a result of the collapse of domestic consumption, which was not dependent on bank credit. So when there is a rebound in domestic demand, the economy recovers without having to depend on bank credit,'' Teja said.

''But for the recovery to become sustainable, the banks' non-performing loans must be resolved,'' he added.

Mogdaham said Thailand's economic reforms were progressing satisfactorily but the NPLs, the only major remaining problem, must be seriously addressed.

He and Teja believed that the NPLs, which stood at about 47 per cent of total bank loans, had already peaked and that efforts should be strengthened to bring them down in absolute terms.

''We would like to see further reform in the banking system, because a large number of structural reforms have been proceeding well, which are helpful to the sustainability of the recovery,'' Teja said.

BY THANONG KHANTHONG