As the contagion effect from the regional economic crisis wreaks havoc in South Korea, Thanong Khanthong and Vatchara Charoonsantikul examine how Thailand is faring amid the continuing turmoil.

The depth of the regional financial turmoil so far indicates that South Korea and Indonesia are worse off than Thailand, which could ride out of the upheaval ahead of Malaysia, according to analysts.

Yesterday, a team from US investment bank Goldman Sachs, headed by managing director E Gerald Corrigan, visited Thailand to gain a first-hand look at the financial crisis.

Corrigan, also an expert on International Monetary Fund (IMF) affairs thanks to his experience as a governor of the New York Federal Reserve, has been wooed by Finance Minister Tarrin Nimmanahaeminda to become an adviser to the Thai government.

The impression they gave to Thai officials is that Thailand's strength lies in the fact that it is a food-surplus country that is not likely to be engulfed by the inflationary flames caused by the sharp plunge in the local currency.

In fact, they said, Thailand is suffering from a deflationary wave, a revaluation of assets following a collapse of the bubble economy.

Year-on-year inflation as of November stood at 7.6 per cent, while the average inflationary rate over the first 11 months of this year reached 5.5 per cent, well within the target of the IMF this year of 9.5 per cent. But asset and equity prices have been coming down fast, which will force the Land Department to begin adjusting land appraisal prices downward early next year.

Thai officials said the Goldman Sachs team views that the local banking system, shaky as it is, is expected to be in better shape than the Malaysian banking system. Malaysia's central bank is taking pre-emptive steps to address the potential risks in the banking system, including plans for banks to merge with their larger peers.

Malaysian Prime Minister Mahathir Mohamad was quoted as saying that: ''We are flattered when people say we shall prevail. But they do not know how difficult things are now, as many companies are half-dead, and when people are not able to repay bank loans, banks may go bust.''

The baht tumbled to an all-time low yesterday, almost 70 per cent lower since the devaluation at Bt43.50-Bt43.60 against the US dollar, evidently suffering from the regional frenzy that spurred the value of the South Korean won to collapse by almost 93 per cent and the Indonesia rupiah by 86 per cent since the turmoil took off in the middle of this year.

The turmoil in this part of the world does not bode well for the US, either. A Thai economic planning official said if the US dollar hits 130 to the Japanese yen, as it is now testing, it will cause the big three American car makers to start considering laying off their workers and closing down plants. Japan's trade surplus against the US will also soar further.

Somkiat Osotspa, a Chulalongkorn University economist, said a freefall of the Thai baht and other Asian currencies will not be stabilised unless the US dollar also experiences a similar weakening. Somkiat expected that the Asian currency contagion will spread to Australia, New Zealand, Latin America and Eastern Europe next year. Hong Kong, Singapore and Taiwan, which have been relatively unscathed from the crisis, will soon suffer from the contagion effect, he added.

In Thailand, everyone is expecting a big clean-up of the Thai banking system now that Finance Minister Tarrin Nimmanahaeminda has laid to rest the ''ghost'' of the 58 suspended finance companies. Strengthening the remaining financial system, which consists of 15 banks and 35 finance companies, is one of the conditions the Thai government agreed with the IMF.

JF Thanakom Securities Co expects that the entire financial system will need to recapitalise by about Bt496 billion. This figure might be overstated, yet the money is there already in the system because the Financial Institutions Development Fund, which has provided liquidity support to a host of Thai banks to the tune of Bt200 billion, will be converting its loans into equity. However, the banks will have to source additional local and foreign funds to maintain a tough capital adequacy ratio of 12 per cent -- higher than the international standard of eight per cent -- in order to restore confidence.

The deadline is Dec 30 for all the banks to commit to a new set of rules and standards with regard to loan-loss provisions and non-performing loans. They will have to write down their bad assets from their equity until their share prices reflect the real value of their equity. Hence, a bank may be raising new capital at, say, Bt3 without any premium.

If this clean-up of the banking system is successful, Thailand will be clear to remove one of its feet from the grave. The next equally challenging task is to shake up the real sector, which must reform to produce goods that world markets want. Exports will be the key to ride Thailand out of the present financial crisis.