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Repurchase rate to stay high towards Bt stability


SUPACHAI Panitchpakdi, deputy prime minister and commerce minister, Friday reaffirmed Thailand's commitment to adhere to the International Monetary Fund-prescribed tight monetary policy by keeping the repurchase rate at a high 15-20 per cent to defend the Thai currency.

Speaking at the Pacific Rim Allied Economic Organisations third conference, Supachai appeared to have backed down from his earlier comment that interest rates would have to be brought down to revive the economy. This comment sent out conflicting signals between him and Finance Minister Tarrin Nimmanahaeminda, who insisted the money market needed to be tightened to encourage investors to hold the high-yield Thai baht vis-a-vis the US dollar.

Supachai made it clear Friday that there would not be any political intervention in the way monetary policy is managed. The overnight rate, which he said jokingly had become an ''overmonth rate'', shot up to 25 per cent before weakening to 22 per cent over the past few days with the full market forces at work. ''We'll strictly adhere to the IMF programme,'' he said.

The IMF has been criticised for prescribing too harsh a remedy for Thailand with severely tight monetary policy, which it believes is necessary to keep the Thai currency stable. Some analysts also blamed the banking regulators for overdosing on the IMF medicine, which resulted in prohibitively high interest rates that are killing the Thai economy.

However, Thailand at this juncture has no choice but to bite the bullet and muddle through the IMF programme, which guarantees its balance of payments. Stabilising the baht remains the most urgent policy objective to prevent the economy from collapsing further.

Supachai told his audience some positive signs are emerging in Thailand's current account, which is expected to become a surplus this year. A current account surplus means Thailand will not suffer a bleeding of capital from the trade and service side, but there will still be an outflow from the financial account.

Analysts said the pressure on the Thai currency remains clear and present, given the fact that the private sector this year will have to repay more than US$40 billion in foreign debts and the Bank of Thailand will also have to settle more than $10 billion in its forward currency contracts. ''The pressure of foreign debt repayment will continue to create hardship for the economy since export earnings amount to only one-fifth of the foreign debts,'' said an analyst from a financial institution.

Supachai added that the regional financial turmoil cannot be brushed aside as merely an ''Asian flu'' since the contagion effect is spreading out to threaten global economic well-being. For the first time in recent memory, growth in Asia will lag behind the rest of the world. Its impact will be enormous because Asia accounts for about 50 per cent of the world's trade, he said.

Supachai said US economic growth is expected to slow sharply this year to 2.50 or 2.00 per cent against 4 per cent in 1997, with such sectors as energy, infrastructure, defence, aircraft and tourism taking big hits as Asia scales back its investment and spendings. However, he said Europe will be hit harder than the US because of its larger exposure to the region.




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