BIS expected to reassure G-10 to back Thailand

BIS expected to reassure G-10 to back Thailand

ZURICH (Reuter): The Bank for International Settlements (BIS)
was yesterday expected to reassure global markets that the
world's leading central banks support Thailand and are ready to
put up cash if needed, bankers said.

But international central bankers do not expect BIS to offer
any immediate money to Thailand as the country is not considered
to be facing an immediate liquidity crunch.

The support from BIS, owned by central banks across the globe,
amounts to an insurance policy for beleaguered Thailand.

"A large group of central bankers fully support the Thai
program and are willing to put up liquidity if needed," said one
European central banker.

"But right now, they don't see a need," the source added.
The board of the International Monetary Fund (IMF) will be
meeting later today in Washington to review a Thai economic
reform package, including a US$4 billion IMF standby loan.
Thailand can then draw on this loan within days, reducing the
need for any immediate BIS bridge facility.

In the past, BIS has arranged short-term loan facilities as
part of IMF economic reform programs, for example for Mexico.

BIS, whose board comprises the Group of 10 (G-10) central bank
governors, plans to issue a statement on Thailand following the
IMF board meeting.

"The BIS statement should reassure markets that Thailand is
very unlikely to run into a liquidity problem," a banker said.
Sources said BIS had made arrangements for a short-term finance
facility for Thailand, but this will only be activated in the
event of a need.

The G-10 comprises 11 countries: The United States, Japan,
Germany, France, Canada, Britain, Italy, the Netherlands,
Belgium, Sweden and Switzerland.

BIS' support for Thailand is important because the bank can
raise substantial funds almost immediately and thus respond to
any sudden crises.

IMF's standby loan is part of a $16.7 billion international
package for Thailand that was agreed earlier this month in Tokyo
to help shore up foreign reserves and correct balance of payments
problems created when Bangkok floated its baht currency last
months after speculative attacks.

The IMF loan is tied to a major economic reform program for
Thailand, including tighter fiscal and monetary policies and the
publication of regular information on foreign reserves and
central bank assets and liabilities.

The attacks on the baht were triggered by a collapse in
Thailand's financial and property sectors and a slowdown in the
economy, previously one of Southeast Asia's tiger economies.

IMF and Japan will each contribute $4 billion and the World
Bank $1.5 billion. The rest of the money will come from other
Asian-Pacific countries and the Asian Development Bank.

The international package is the second largest loan facility
to a single country since 1995, when the United States headed an
initiative to raise nearly $50 billion to aid Mexico.
BIS participated with $10 billion in the Mexico package, but
Mexico never drew on the facility.

Despite many parallels between Thailand and Mexico, there are
also substantial differences.

While Mexico was facing a direct drain on its foreign currency
reserves due to government debt, Thailand still had reserves of
$32.4 billion at the end of June.

Thailand's external debt amounts to $89 billion, of which $73
billion is from the private sector.

Economists, however, are concerned that Thai-based financial
institutions have borrowed heavily abroad, mainly in yen, and
extended loans to the slumping Thai property sector.

The devaluation of the baht has increase the debts of the
finance companies and economists fear the problems will worsen if
property prices continue to slump.