Asecond round of attacks on the baht appeared to have reached a critical mass yesterday following the dramatic announcement that the Bank of Thailand and the Monetary Authority of Singapore had launched a concerted intervention in the foreign exchange market to defend the Thai currency.

Unlike the previous baht attack in February, the situation is grave this time with far reaching implications not only for Thailand but also for regional financial stability as a whole.

''This concerted operation is aimed at stemming excessive speculative activities which may lead to disorderly conditions in the Thai and regional financial markets," the Thai central bank said.

However dealers in Singapore indicated that the concerted intervention also involved the Malaysian and Hong Kong central banks to defend the Thai currency against the US dollar. This suggests a major important step has been taken among the regional central banks to foster closer foreign exchange cooperation to defend regional financial stability.

In February the foreign hedged fund managers, currency dealers and speculators tested the water by assaulting the baht after they had witnessed deteriorating signs in Thai macro-economic conditions. The Thai economy then was still punch-drunk from the burst of the bubble economy in 1996.

Apart from the looming crisis in the financial system, a widening current account deficit, a sky-high level of corporate debt and a sharp export slowdown, the foreign players saw cracks in the Thai government's management of fiscal policy. A 1997 budget deficit would not only erode what is left of foreign investors' confidence but also harm the integrity of the currency peg system. Managing the baht through a fixed exchange rate mechanism has been a hallmark of Thailand's macro-economic policy management since 1984.

The baht attack in February, fuelled by devaluation rumours, prompted the central bank to put up a fierce fight. Some US$2 billion from international reserves were spent to prop up the Thai currency, sending the reserves down to US$38 billion. The battle took place both in the spot market and the forward market.

The central bank won the battle, but it has not won the war as yet. The foreign currency speculators retreated from their dealing rooms but kept watching Thailand closely. They gave Thailand the benefit of the doubt, thinking that the country would improve its macro-economy and that the political leadership would learn how to fix the problems.

Last Thursday a second round of attacks on the baht broke out. At around 5.15 pm, when the tempo of the foreign exchange market in Bangkok had sharply slowed, rumours began to swirl around the dealing rooms that the Thai banking authorities would be widening the baht/US dollar trading band.

Since then the situation for the baht has been deteriorating, coming under heavy selling pressure until it was sent wide of the official trading band. The official trading band is part of a currency peg system that allows the baht to move up or down two satang per dollar on a daily basis.

The central bank's official mid-rate was quoted at Bt25.86, but the speculators dragged it off the trading band down to between Bt26.04 and Bt26.26.

In one day yesterday the baht lost about one per cent. Given the country's external debt load of about US$90 billion, the debts owed by Thai corporations and government agencies rose further by US$900 million in unrealised foreign exchange losses.

The baht attack, combined with political pressure for Dr Amnuay Viravan, the finance minister, to resign, drove the Thai stock market down to a six-and-a-half-year low to 571.30, down 4.82 per cent. The financial crisis has certainly intensified.

Now there are strong grounds for speculators to attack the baht again, with the aim of forcing a devaluation. Attempts to sack Dr Amnuay, who is respected in the financial markets, have come as a disappointment because he is the most credible Cabinet member in the Chavalit administration.

Besides, there have been no improvements in Thai exports, which grew only 1 per cent in the first four months of this year. Imports have slowed down markedly because Thai manufacturers have no money to pay their bills. The ability of Thai corporations to generate revenue has significantly fallen, arousing nervousness among the creditors over the ability of Thailand to repay its debts.