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Tough IMF medicine essential


INTERNATIONAL Monetary Fund managing director Michel Camdessus says Thailand's sluggish growth and inflation will continue at least until the first half of next year before the economy begins to pick up, provided that the Thai government strictly follows through with the IMF-prescribed economic and financial reform programme.

Speaking yesterday after his discussions with Prime Minister Chuan Leekpai and the top Thai economic team and banking regulators, Camdessus was adamant that the IMF's tough medicine for Thailand was adequate to win back confidence without any additional financing at the present time beyond the US$17.2-billion bail-out package.

Besides, he added, the Thai leader did not ask him for additional financing in the bail-out package, struck with the IMF in August this year after Thailand had been facing an unsustainable balance of payment crisis. The question is not about money, Camdessus said; what Thailand really needs now is a full, speedy implementation of the austere economic programme and a wholesale restructuring of the financial system, which includes a decisive dealing with the 58 suspended finance companies.

Initially, the Democrat economic team, headed by Deputy Prime Minister Supachai Panitchpakdi and Finance Minister Tarrin Nimmanahaeminda, planned to seek the IMF's assistance for Thailand to borrow additional stand-by credit to bolster its foreign exchange reserves and improve liquidity. The Democrat Party, which will be sworn into office today, was also deeply concerned about the lack of any room for economic growth in the IMF's bail-out package and wanted a full explanation from Camdessus and his IMF economists.

Camdessus said Thailand is not facing a recession but a stagflation, the result of radical economic adjustments affected by such factors as the sharp devaluation of the baht, the narrowing of the current account deficit and financial turmoils. But he was confident that once Thailand follows the IMF programme, which prescribes fiscal and monetary tightening, the Thai economy will see recovery in the second half of next year, paving the way for normal economic growth.

Speaking after meeting Camdessus, Tarrin admitted that the first phase of Thailand's implementation of the IMF programme would have little room for adjustment because the country will need to win back international confidence with the package. He added that after the first phase of the implementation and confidence is renewed, then the Thai government will talk about economic growth with the IMF.

The IMF executive board, chaired by Camdessus, is scheduled to meet on December 8 to review the progress of Thailand's implementation of the economic and financial reform before deciding whether the country is allowed to disimburse the second tranche of stand-by credit worth about US$800 million.

Camdessus, who heads for the Philippines today after hopping around the region to review the financial upheavals, emphasised that a credible and successful programme to deal with the 58 suspended finance companies will be a pre-condition for the disimbursement; however, he did express his confidence over Thailand's implementation of the overall financial and economic reform so far.

A visit to Malaysia, Singapore and Thailand gave him the impression that the potential for confidence is being re-established in the regional economies in medium and long-term prospects. Because of the interdependent nature of the regional economies and the contagion effects from the financial turmoils, Camdessus saw a responsibility for each country in this region to succeed its financial and economic reform.

''Southeast Asia, which is passing through a miracle stage into maturity, needs the success of Thailand, the way Thailand needs the success of this [IMF] programme," he added.

The lesson drawn from the regional financial upheavals is that these economies need to establish a new basis for regional financial cooperation to prevent risks of financial volatility in the globalised markets, he said. Rather than coming up with regional monetary funds to help bail out countries in financial trouble, Camdessus emphasised that it's better if these economies cooperate through surveillance or peer pressure and follow prudent macro-economic policy.




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