IMF praises tiger economies after Thai baht crisis

IMF praises tiger economies after Thai baht crisis

WASHINGTON (Reuter): The tiger economies of southeast Asia won high marks from the International Monetary Fund on Monday for handling the fallout of Thailand's currency crisis, but a top IMF official said Bangkok should act fast to keep its growth on track.

IMF First Deputy Managing Director Stanley Fischer told a news briefing that Thailand was likely to need a package of tax, banking and currency measures to keep the economy on track. Some elements of the plan had already been adopted.

"We do not see growth going to zero. We think with decisive action soon, they can still grow this year," he said. But if the authorities did not act promptly, Thailand could be heading for "a long period of slow growth", he added.

Thailand was forced to devalue the baht currency this month after strong speculative pressure, and the decision sent shockwaves through currency markets across the region.

The Philippines devalued the peso and won US$1.1 billion in emergency IMF funding to support future policies, Indonesia widened the rupiah's trading band against the dollar and pressure has risen on the free-floating Malaysian ringgit.

"The authorities have behaved rapidly and impressively," Fischer said.

He said the IMF was in contact with the authorities in Indonesia, where the rupiah touched record lows against the dollar on Monday before recovering slightly. "We are quite confident that they know what they are doing and will deal with market pressures in the right way," he said.

Fischer said there was no reason for the currencies of regional economic powerhouses Hong Kong and Singapore to face speculative pressure.

"These are immensely strong currencies and not vulnerable in any way that we can see," he said. "They have very good monetary authorities."

Thailand, unlike the Philippines, has not asked the IMF for help to resolve its problems, but Fischer highlighted currency flexibility, reforms in the financial sector and fiscal measures as things that would probably be needed.

He said the enforced currency float meant that the first issue was already being tackled and the authorities had made progress in reforming the financial sphere.

A revised budget had been prepared before the currency crisis, but more action might be needed.

Fischer said there were similarities between Thailand's problems and Mexico's financial crisis of 1995 but the problems were not on the same scale.

Growth had been strong longer in southeast Asian, which meant efforts to adjust policies to rein in problematic current account deficits were not likely to have the same recessionary effect.

Capital flows were more robust than during the Mexico crisis and capital markets were not reacting in the same way.

"I think, as with everything, there are similarities -- a country which was regarded as suspect by the markets -- but there are critical differences," he said.

"We do not see the underlying adjustment in any of these countries being anything like that which had to be done in Mexico," Fischer said. "There is a problem, but it is not on the same scale."