Thailand cuts growth forecast to 0.6% for 1997

Thailand cuts growth forecast to 0.6% for 1997

BANGKOK (AFP): Thailand has slashed its economic growth forecast for 1997 to only 0.6 percent because of the plunge in the baht and the currency turmoil across Asia, the finance minister said yesterday.

Tarrin Nimmanahaeminda told a news conference of the revision from an earlier forecast of 2.5 percent, which was the original target of an International Monetary Fund (IMF) economic rescue plan for Thailand.

The fresh target would be included in a Letter of Intent to the IMF, approved by the cabinet Tuesday, to secure a second installment of US$3 billion from the $17.2 billion bailout package.

The first tranche of the bailout -- needed to shore up Thailand's foreign reserves during the country's worst economic crisis in decades -- was $4 billion.

The government was committed to the IMF program but was amending growth forecasts because of changes in the domestic and regional economic situation since the package was negotiated in August, Tarrin said.

The 1998 gross domestic product growth forecast was also cut to between zero and 1 percent from 3.5 percent.

Tarrin said the changes were due to the drop in the baht -- to 40 to the dollar compared with 26 before it was floated on July 2 -- and the currency problems across the region, which had also served to dent the competitiveness of Thai exports.

A government statement said the key target of the IMF package, that Thailand achieve a 1 percent budget surplus for the fiscal year to September 1998, would not be changed.

The new forecasts prepared for the IMF also see 1997 foreign exchange reserves at $23 billion, while the 1998 reserves target has been revised upwards to 24.8 billion from 24.5 billion.

The end-1997 forecast represents a sharp drop from the end- October reserve figure of $31.3 billion.

Analysts said the drop was in line with expectations, because of the central bank's forward currency swap contracts -- which the bank has said totaled $23.4 billion before July.

Tarrin said that persuading creditors to roll over Thailand's foreign debts -- estimated at $90 billion, over $70 billion of it to the private sector -- would be crucial in maintaining the minimum reserve requirements.

"Everything depends upon our ability to satisfy the creditors ... that our program will work, that we are prepared to take tough medicine and work closely with the IMF and the international community," he said.

The program was needed to sustain Thailand and "pave the way for real adjustment and recovery," he said.

Among other new forecasts, the government saw export growth for 1997 at 3. 2 percent while the 1998 export growth forecast has been cut to 7.9 percent from 8.6 percent.

Imports for 1997 are expected to drop 9.3 percent compared with an earlier predicted fall of 6.1 percent, with the 1998 import growth forecast to be cut to 0.2 percent from 1.6 percent.

The 1997 inflation rate is now seen at 10 percent rather than 9.5 percent.

The 1997 current account deficit has been revised to 3.9 percent of gross domestic product and in 1998 to 1.8 percent.

The statement said the Bank of Thailand would maintain a tight monetary policy under existing IMF conditions and the Letter of Intent.

Bank of Thailand governor Chaiyawat Wibulsawasdi said the central bank was forecasting a 1997 current account deficit of $6.4 billion, narrowing to $2.5 billion in 1998.

He said the central bank sees an upward trend in long-term foreign capital inflows.