The baht is closely following the South Korean won and Indonesian rupiah its slide to disastrous levels, report Thanong Khanthong and Vatchara Charoonsantikul.

There's hardly any poetic justice to be found in the saga of the sinking baht, which lost Bt2.75 in a single day yesterday to hit Bt48.10 against the US dollar.

Driven almost purely by the regional frenzy and a local speculative binge, the baht looks as if it will suffer the same fate as the South Korean won and Indonesian rupiah. The two currencies have already seen their value crash by more than 50 per cent against the US dollar. Now the question is -- what does this foreign exchange level mean to Thailand as a whole?

It is horrifying to imagine that the worst may be yet to come. Since Thai companies have saddled themselves with US$70 billion in foreign debts, they stand to suffer another Bt200 billion in foreign exchange losses if the baht hits Bt50 against the greenback.

Siam Cement Plc, which suffered a Bt19 billion unrealised forex loss in the third quarter, will see the loss extend to Bt25 billion in the fourth quarter if the baht hovers at the Bt47 level. However, an executive of Siam Cement was heard as saying recently that the company could survive an exchange rate of Bt45/US dollar, but he was not sure whether the country could.

Several analysts have said that at Bt40 against the US dollar, Thai corporations should be pronounced dead so it is almost pointless to try to quantify the problems facing Thailand at baht/US dollar exchange rates of Bt40 or even Bt100. Thai companies have been hit hard by cash-flow problems and foreign exchange losses, particularly those with short-term foreign liabilities.

At the end of last year, foreign debts with a maturity of less than two years in Thailand reached about 120 per cent of the Bank of Thailand's foreign exchange reserves.

It is a classic case of a self-fulfilling collapse. Banks, which are obliged to trade currencies around the clock, are shying away from holding the baht by quoting a wide spread for the US dollar. This has inflamed the fears of Thai companies and induced further speculative binges by traders, who rushed to short sell the local currency against the greenback, further aggravating the problem.

The premium for the dollar is becoming more prohibitive. The one-month swap rate for the baht/US dollar is 75-85 satang, compared with 100-113 satang for the two-month swap rate, 180-210 for the three-month swap rate and 450-490 satang for the one-year rate.

Arphorn Chewakrengkai, chief economist at Morgan Grenfell (Thailand) Ltd, rightly warned that the speculation against the baht by local companies will backfire if the currency crashes and causes business conditions to deteriorate beyond repair.

The sliding baht has forced the authorities to raise interest rates further. The interbank rate is hovering at 23 to 24 per cent compared with 22 per cent for the repurchase rate.

Finance Minister Tarrin Nimmanahaemida has staunchly defended the high interest rate policy to stabilise the baht, arguing that the policy is merely short term. His major concern is widespread, inconsistent comments on the baht's direction, which have given rise to further speculative activity.

Nukul Prachuabmoh, a former Bank of Thailand governor, said the baht is now driven purely by sentiment.

''If people believe the baht should weaken, it will weaken. If they believe that it should go up, it will go up. So the baht can now go either way,'' he said.

The baht's real effective exchange rate has been calculated by the International Monetary Fund at Bt32 to Bt33 against the US dollar. But sentiment against the baht, as well as other regional currencies, is so bad that nobody believes this figure. If the baht keeps on sliding, it will destroy the economic fundamentals and worsen the real effective exchange rate.

It should be noted that Thailand's financial crisis is not a national problem but has expanded to take the broader shape of a regional and global problem. Southeast Asian leaders, meeting in Kuala Lumpur, have called for the United States, Japan, the European Union and international institutions to do more to alleviate Asia's financial crisis and address the systemic issues underlying it.

The statement called for ''greater national, regional and international efforts, including by the major economies such as the European Union, Japan and the US, and international financial institutions, to overcome this situation as soon as possible and address the systemic issues underlying it''.

One of the major systemic issues underlying Asia's financial turmoil is the banking crisis. In Thailand, the weakness of the financial sector was underestimated until the problems grew out of control. Now most analysts believe that non-performing loans (NPLs) in the financial system will reach 25 per cent, or more than Bt1.3 trillion, of total loans.

At this level, barring a successful massive recapitalisation, several financial institutions should be declared technically insolvent. The banking systems in Indonesia, South Korea and Malaysia are also believed to have more than 15 per cent in NPLs.

Robert Zielinski of Jardine Fleming, a US investment bank, was quoted by The Economist as estimating that the NPLs of Southeast Asian banks alone will peak at US$73 billion, representing about 13 per cent of the region's gross domestic product. A gigantic pool of money is needed if the region is to weather the banking crisis.

In Thailand, the Asset Management Corp, which will act as a ''bad bank'', will need at least Bt200 billion to bail out the problem loans in the system. Nobody knows whether this money will be forthcoming.

If the bad debts in the financial system are not fully addressed, the economy will not have a chance to stabilise. Some tough decisions on the fate of the 15 commercial banks will prove whether the government can live up to expectations.

In the meantime, there is no easy answer for what will transpire over the coming months, but things will get much worse before they improve.