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.