Chuan sees more economic hurdles ahead

Chuan sees more economic hurdles ahead

BANGKOK (Reuters): Thai Prime Minister Chuan Leekpai said yesterday his battered country still faced economic hurdles one year after the float of its currency, a move that sparked its worst economic crisis in decades.

Chuan told Reuters in an interview the currency was now at a more realistic level than it had been earlier this year. It hit a historic low of 56.90 baht to the U.S. dollar in January.

"There are still many problems in the future," Chuan said, adding that the government would have to use various "mechanisms and measures" to improve the economy.

"It is a matter of not slowing the economy further," he said. "The government has to restore confidence to bring money in from foreign countries so that we can reduce local interest rates."

Cash-strapped Thailand is suffering from a severe liquidity crunch, high interest rates, sagging exports, capital shortages in its ailing financial sector, loss of foreign investor confidence and growing unemployment.

As if all this were not enough, Chuan's government must also grapple with the resultant social stresses.

Speaking on the first anniversary of the devaluation of the Thai baht on July 2 last year, which in turn triggered Asia's financial crisis, Chuan said the government had been successful in stabilizing the baht.

"The current baht value is more realistic and more stable. The movement of the baht now is normal," he said. "The market interest now is not on the rate of the baht but on the stability of the baht."

The baht, which has traded in a 37.50-45.00 per dollar range in recent months, was quoted at 41.75-41.85 late in the Asian trading day yesterday.

The currency has lost about 40 percent of its value since its flotation.

Chuan said there had been many problems since devaluation, and his government understood people's concerns.

"I understand that people want the situation to be the same as before 1997. But it is impossible in the short- to medium-term," he said.

Chuan's six-party coalition took power last December, and has had a rough ride since with the opposition, depressed farmers and activists claiming his administration is funding bail-outs of rich, failed businessmen at the expense of the poor.

But Thailand still retained some advantages, Chuan said.

"In terms of exports and doing business, Thailand is quite competitive compared to Malaysia, the Philippines and South Korea," he said.

Chuan indicated the government wanted lower interest rates, saying it wanted to convey this to the markets.

Thai rates are among the highest in the region, with the minimum lending rate at between 15.25-15.50 percent.

But he suggested that the priority was improving liquidity, which would in turn bring down rates.

"Comparing the problem of high interest rates with the liquidity problem at the moment, businessmen prefer to have more liquidity in the system," he said.

Businessmen and exporters have complained bitterly that high rates and selective lending by commercial banks have choked their operations.

Thailand has received millions of dollars in loans from the Asian Development Bank and the Japan Export Import Bank to finance exporters, but local industry representatives say the money has failed to find its way to those really in need.