Thai plan to ditch IMF crutches risky

Thai plan to ditch IMF crutches risky

BANGKOK (Reuters): Thailand may have been a little overconfident in deciding to wean itself from the International Monetary Fund, financial analysts said on Tuesday.

The country's large foreign debt of about $81 billion and the possibility, however slim, of a second Asian financial crisis make such a plan risky, they told Reuters.

"A lot has improved in Thailand since the crisis hit in 1997. But risks are still there. We are living in an extremely vulnerable globalized financial world," said a senior Thai bank executive who declined to be identified.

"There is no guarantee that there won't be a financial crisis in the region in the near future. Even though our (baht) currency is floated, there is a chance, however remote, that we might need money to defend the currency," he added.

"With an external debt over $80 billion, Thailand is still vulnerable," he said.

Arporn Chewakrengkai, a senior economic advisor to Prime Minister Chuan Leekpai, said Thailand had stopped withdrawing money from the IMF and was considering repaying the loans early.

Thailand's level of foreign reserves is comfortable, the economy is headed toward recovery and its balance of payments on the current account could turn into surplus, she said.

IMF contributed around $3.9 billion to a $17.2 billion multilateral package it arranged for Thailand in August 1997 after authorities floated the baht -- a move that plunged the country into its worst recession in decades.

Thailand has so far drawn $14.1 billion and now plans to start repaying earlier than September 2000 as originally planned.

"Finance Minister Tarrin (Nimmanahaeminda) is a very cautious man. He would not have thought of stopping taking loans and repaying early if he does not believe we can do it," Arporn said.

"The foreign reserves at $32.4 billion can finance 8.5 months of imports or short-term debt. We are comfortable with it. If we borrow more, we will have to unnecessarily shoulder more interest burdens," she said.

Arporn noted that debt repayments for the IMF package next year would be not more than $1.0 billion.

"The first payment to the IMF would be only $203 million. The rest will be for other bilateral loans in the package which are mostly long term," she said.

Thailand's external debt at the end of August stood at $81.2 billion. Of the total, around 22 percent matures within a year.

She said the repayment should not affect Thailand given indications of economic recovery, expected strong exports and a current account surplus seen at $7 billion to $8 billion in 2000.

"We are also positive about the economic outlook. But there is always room that something wrong could happen and reverse all those positive aspects we talk about," said Maris Tarab, head of research at KGI Securities One.

"However, at this juncture I think the chance of another crisis in the region is slim. Therefore, if Thailand decides not to withdraw further loans and repay debt early, it should be okay for the country. It might even send a positive message about the Thai economy," he said.

Market confidence in Thai efforts to foster economic recovery is needed before Bangkok throws away its IMF crutches, analysts said.

"With the floating currency, I think the question of whether reserves are adequate is an empty question. But at the same time, we cannot neglect the irrational effects on the confidence," said Richard Henderson, research director at Kim Eng Securities.

"There is always a possibility that the reserves will be used.

The fact that there is a big wad of cash sitting in the reserves is something that obviously the market finds comforting, although I don't think it should," he said.

Central Bank governor Chatu Mongol Sonakul said Thailand should legislate to give it more flexibility to deal with sick financial institutions before it started to repay the IMF loans.

He said this would boost market confidence in Thailand and help the baht. He also suggested any IMF repayment should be made after concerns about the so-called Y2K computing bug subsided.