Thailand may be forced 'to seek IMF leniency'

Thailand may be forced 'to seek IMF leniency'

BANGKOK (AFP): Premier Chuan Leekpai warns that Thailand may be forced to ask the IMF to relax the terms of its rescue package as the economic slump further erodes state revenues.

Chuan, who has been in power less than two months, admitted that the economic crisis confronting his government was worse than he had anticipated when he took office.

"The government might ask the International Monetary Fund (IMF) to ease its bailout package requirements, particularly that there be a surplus budget for fiscal 1997-98," Chuan said in an interview with the Bangkok Post.

He said such a request could come after the IMF releases the last installment of its portion of the $17.2 billion rescue package in February.

"To make such demands before the money was handed over might lead to the IMF refusing to release it, damaging Thailand," the paper said. "It might also send the wrong message to other Asian countries borrowing from the IMF."

Bangkok must achieve a budget surplus of one percent of gross domestic product in fiscal 1997-98 under the IMF bailout, which Chuan and his economic "dream team" have vowed to respect.

But while Chuan said Bangkok would do its best to meet the IMF targets, he admitted that the goal was becoming more difficult as the economic climate worsened.

Adherence to the IMF targets has been seen as crucial to attempts to restore waning confidence in Thailand's embattled economy.

Chuan warned Thais they may be in for even harder times in the form of tax increases to make up for dwindling state revenue.

He said his "biggest concern was that the government may not be able to collect enough revenue to meet expenditure," despite a round of three budget cuts which shaved 182 billion baht ($3.9 billion) off the budget for the current fiscal year starting last September.

"I would like to tell the people straight that, despite best efforts to increase revenue and to cut spending, if there is still a revenue shortfall then it might be necessary to have a tax increase," he said.

Reining in public spending as tax revenues drop has been the mainstay of government budgetary policy. But the budget is already pared to the bone to the extent that medium-term economic growth could be jeopardized.

The premier conceded that balancing the 800 billion baht ($17 billion) budget was "virtually impossible, let alone having a surplus of some 70 billion baht."

While conceding that the economy was in worse shape than he had expected when he was appointed last month, Chuan said the "most shocking thing is about the revenue."

The prime minister also expressed doubts over whether South Korea would be able to make good its pledge to lend Thailand $500 million as part of the IMF deal. Seoul itself has since been forced to accept a $60 billion bailout.

He said Indonesia, which had earlier pledged to contribute to the Thai bailout, had problems which had forced it to seek its own rescue package.

But the prime minister was optimistic about the future of the floundering baht, saying the current level was "unrealistically low."

The baht, which has lost more than 46 percent of its value against the dollar since its shock flotation on July 2, is now hovering around the 47 to the dollar mark onshore.

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