Thai borrowing from IMF inevitable: Analyst

Thai borrowing from IMF inevitable: Analyst

By Anchalee Koetsawang

BANGKOK (Reuter): Rapid loss of investor confidence, festering economic wounds and heavy local pressure will inevitably force Thailand to take more than just IMF advice -- possibly loans or a credit line, analysts said on Monday.

But any government decision on taking a financial life-line from the International Monetary Fund would be delayed until the last minute because ruling politicians were wary about tough, unpopular conditions expected to be attached to any IMF aid, they said.

"Tough conditions or not, this is the best way out so far given public confidence in the government is waning," said Arporn Chewakrengkai, chief economist at Deutsche Morgan Grenfell.

"At the end, I believe Thailand will need both the credit line from which we can tap money when needed and advice to put the economy back on track," she told Reuters.

Thai Finance Minister Thanong Bidaya said on Monday that he was meeting a five-man IMF team in Bangkok for a week to seek advice on how Thailand could resolve its economic crisis.

But when it came to the question of whether Thailand would borrow from the IMF as part of any rescue package, Thanong said the government would need to study the issue further to see if it was necessary.

Separately, however, Bank of Thailand Governor Rerngchai Marakanond told reporters on Monday that Thai premier Chavalit Yongchaiyudh and Thanong had agreed in principle since July 22 to tap loans from the IMF.

His statement was the first from a top Thai official that Thailand had privately decided to take unspecified IMF loans. Conditions proposed by the IMF in return for loans have yet to be announced officially. But finance ministry sources said the agency was likely to prescribe tough fiscal and monetary steps that were bound to make the government appear unpopular.

The stringent conditions were likely to involve further cuts in government spending and an increase in taxes as the IMF would demand to see a surplus fiscal position.

The IMF might also ask the central bank to limit its risk exposure to the troubled finance and property sectors which could see more companies fold or suffer, the sources said.

"It's the politics that has delayed the decision. Thailand will need financial backup from the IMF and the longer the decision is delayed, the higher the cost will be," said Abhisit Vejjajiva, spokesman for the main opposition Democrat Party and a member of the parliamentary economic committee.

"The government is reluctant because it does not want to lose face. It equates acceptance of any IMF package to its failure to handle the economy," he said.

Abhisit said although the IMF conditions could be tough and almost impossible to implement politically, its facilities were needed anyway to heal deep wounds inflicted on the economy.

Thailand is going through its worst economic crisis in over a decade. Investor confidence in Thailand has sunk to new depths, the baht has hit new record lows and the financial and property sectors are suffering from a liquidity crunch.

Abihist said Thai problems worsened as currency attacks spread across the region and made the baht's July 2 flotation untimely.

"When the baht was floated, the authorities anticipated it would stabilize soon and bring in much-needed inflows. But because they did not have a solid and credible backup plan, everything turned upside down," he added.

News that the government was holding talks with the IMF team in Bangkok helped cheer the stock market and sparked a rally. The baht also broke through the 32.00 baht per dollar level resistance to trade around 31.820-31.920 in the offshore market.

"The market wants to see a more visible role of the IMF. At this point, Thailand is having problems with confidence. If the IMF package is what is needed to restore that, it's worth it," said Irene Cheung, vice president at Merrill Lynch.

Arporn said more capital inflows could be expected if there was any IMF endorsement as it could boost confidence.

"I heard that lots of companies are waiting in the wings to overweight Thailand once the IMF steps in," she said.