Vatchara Charoonsantikul and Thanong Khanthong argue that despite the euphoria of a stock market rally, the interest rate cuts and a more stable currency, the Thai economy has yet to bottom out.

Confidence appears to be returning to the battered Thai economy, but any hasty conclusion that we have hit the bottom is going to be premature.

This year's non-performing loans (NPLs) in the banking system will rise to 40 per cent, or Bt2 trillion, of the total loans. The fact is that the banks have yet to deal with their NPLs head-on, as they await passage of the bankruptcy and foreclosure laws.

Only after the bad assets have been foreclosed by the creditors and sold off to the open market can one really claim that the Thai economy has reached a nadir.

It would then be decided which industries or companies survive and which will go under. Transactions following the foreclosure process will establish the benchmark of Thai asset prices.

Looking ahead, even the strongest banks -- such as Bangkok Bank and Thai Farmers Bank -- might bow to the pressure of bad debts in their books by seeking official help for their recapitalisation.

Chatri Sophonpanich, the executive chairman of Bangkok Bank, hinted that the bank, which is now operating with an NPL of 30 per cent, might have to secure capital in both the tier 1 and tier 2 recapitalisation programmes sponsored by the government if its NPLs continue to rise.

''The status of the bank means it does not need to recapitalise now. But I cannot guarantee that we won't recapitalise in the future if the NPL level goes higher,'' he said.

Thai Farmers Bank has just reported that its third-quarter performance was a big mess, posting losses of a gigantic Bt19 billion. It has set aside Bt11 billion in provisions to cope with this loss, but there remains Bt8 billion in losses to be accounted for.

It can be questioned whether Thai Farmers Bank is suffering from NPL losses or from fundamental losses. If the bank faces fundamental losses, it is only buying time because it is running with a negative spread of the profit margins despite enjoying a wide deposit/lending spread of 7-8 per cent. This means that the NPLs are rising faster than expected.

Finance Minister Tarrin Nimmanahaeminda's main focus is to get the banks to resume lending. He has urged them -- to no avail -- to tap the official money in their recapitalisation, yet bankers still hesitate for fear of losing their shirts if they participate in the bail-out programme.

There are three areas -- exports, government spending and private consumption --for the government to boost the economy. Exports won't stage any dramatic recovery because of the wider slump in the international markets. It is reported that Tarrin is planning to raise the government deficit spending by another 1 per cent of the GDP on top of the earlier 0.50 per cent deficit spending of the 1999 budget of Bt825 billion.

The 1 per cent of GDP deficit spending will add another Bt50 billion to the economic system.

A bigger item lies in private consumption. With the collapse in private investment, the only way to stimulate private consumption is through household spending. With a negative interest yield in real terms, the public are being forced to spend their way out of the economic recession.

There has been a proposal for the government to cut personal income taxes by at least 1 per cent of the GDP or Bt50 billion. If the public saves 20 per cent of this amount, there will be Bt40 billion to spend in the sagging economy to create a multiple effect.