Repaying IMF: Another marketing ploy<\/p>\n
Thanong Khanthong, The Nation, Asia News Network, Bangkok<\/p>\n
Prime Minister Thaksin Shinawatra would like to show off
\nThailand's financial strength by announcing that the Kingdom will
\nbe pre-paying all the outstanding loans of US$4.8 billion owed to
\nthe International Monetary Fund by July this year. There is
\nindeed an underlying political agenda behind his decision to
\nremove Thailand from the yoke of the IMF and restore its
\nfinancial integrity.<\/p>\n
Thaksin's Thai Rak Thai Party conducted a vigorous anti-IMF
\ncampaign during the run-up to the last general election on Jan.
\n6, 2001. It blamed the IMF for aggravating the Thai economic
\ncrisis and for advocating that foreigners buy up Thai assets on
\nthe cheap.<\/p>\n
By painting the Democrats and the IMF as the culprits in the
\n1997-1998 crisis, Thai Rak Thai rode on a crest of nationalism to
\nwin their landslide election.<\/p>\n
Thaksin would like to claim that it is his government that
\nsucceeded in liberating Thailand from the IMF's obligations.
\nRepaying all the debt to the IMF would add more weight to
\nThaksin's Asia bonds, which will be launched this year at the
\nsecond meeting of the Asia Cooperation Dialog (ACD).<\/p>\n
At the ACD meeting, member countries will be asked to
\ncontribute a small portion of their international reserves to set
\nup a regional fund, which will be used to subscribe to the Asia
\nbonds. Then Thaksin will host the Asia-Pacific Economic
\nCooperation forum with the status accorded to his regional role.<\/p>\n
Yet our memories should not fail us. Thailand sought a $17.2-
\nbillion rescue program from the IMF in August 1997 during the
\nChavalit government.<\/p>\n
At that time, when Thaksin served as a deputy prime minister,
\nthe country's foreign-exchange reserves were depleted in the Bank
\nof Thailand's futile defense of the fixed exchange rate system.
\nWithout the reserves, the baht could have gone anywhere from Bt50
\nto Bt160 or Bt200 to the U.S. dollar.<\/p>\n
The IMF was brought in to restore confidence in Thailand's
\nfinancial solvency. The IMF, international organizations and
\nother governments extended a $17.2-billion credit line to
\nThailand, which would only be able to draw on this credit line on
\na quarterly basis to shore up its reserves once it met the tough
\nIMF reform conditions.<\/p>\n
The Democrat government implemented most of the painful and
\nvery unpopular reforms, with mistakes here and there, yet overall
\nThailand emerged from the depths of the crisis and has been
\nheaded toward the path of recovery since 1999. By that year
\nThailand had already graduated from the IMF program because it no
\nlonger needed the IMF's credit line.<\/p>\n
In total, the IMF program was designed to cover a period of
\nsix years. In the first three years Thailand could draw on the
\ncredit line and undertake financial and structural reforms. In
\nthe last three years, Thailand would repay the loans.<\/p>\n
From a macroeconomic standpoint, Thailand is in a position to
\npre-pay all the outstanding loans of $4.8 billion. Of the $17.2
\nbillion IMF package, Thailand actually withdrew only $12 billion
\nto prop up the baht.<\/p>\n
And Thailand has made progress in its financial and structural
\nreforms, so that it has so far repaid $7 billion to the IMF.
\nThere remains $4.8 billion in outstanding loans. The last payment
\nto the IMF is due by May 2005.<\/p>\n
Given the high level of Thailand's international reserves of
\n$38.6 billion, a prepayment of $4.8 billion by the middle of next
\nyear should not have any significant impact on confidence.<\/p>\n
But there are a number of factors that should be taken into
\naccount. First, Thailand's total external debt of $60 billion
\nremains high, albeit manageable. The private sector will continue
\nto repay its foreign loans, which would periodically put pressure
\non the baht.<\/p>\n
Second, Pridiyathorn Devakula, the Bank of Thailand governor,
\nhas repeatedly warned of his fears about the looming war between
\nthe U.S. and Iraq. If that happens, it is likely that investors
\nwould go for safe havens by holding hard currencies such as the
\nU.S. dollar.<\/p>\n
The governor has rebuilt international reserves from around
\n$31.6 billion in the middle of last year when he took office to
\n$38.4 billion. This amount should represent Thailand's last
\nstronghold to stabilize the baht in the event of war.<\/p>\n
Third, if there is a war in the Middle East, it would
\nsignificantly affect Thailand's external account. The surplus
\nfrom either the current account or the balance of payments might
\nbe reversed if our exports go into a tailspin or capital takes
\nflight from the country again. Although most analysts try to
\ndiscount this factor, it could happen.<\/p>\n
Fourth, the foreign-exchange market is likely to face
\nvolatility next year. As pointed out by Pisit Lee-ahtam, the
\npresident of TT&T Plc, Japan will be resorting yet again to a
\nweak yen to boost its exports after it exhausted all of its
\nstimulus measures to bring its economy back on track.<\/p>\n
A weak yen will create further foreign-exchange fluctuations
\namong the regional currencies, which move in alignment with the
\nyen.<\/p>\n
Overall, the issue of prepaying the loans to the IMF looks
\nmore political than a routine practice. And Thaksin knows how to
\ntake advantage of the timing. He will never easily exhaust his
\nmarketing gimmicks.<\/p>",
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