Thailand needs loans to boost foreign reserves

Thailand needs loans to boost foreign reserves

BANGKOK (AFP): Thailand needs an additional US$8 billion in loans to augment its existing International Monetary Fund (IMF) bailout package and boost foreign reserves, a report said Wednesday.

Thailand Development Research Institute (TDRI) president Chalongphob Sussangkarn said the central bank would need more money next year to shore up foreign reserves, stabilize the baht and bolster market confidence in the economy, the Nation reported.

Chalongphob said the Bank of Thailand's reserves had fallen significantly despite IMF aid because foreign investors are selling baht for dollars for fear the reserves will not be enough to meet the country's huge debt obligations.

The IMF approved a bailout package worth $17.2 billion in August, to ensure Thailand stays solvent in the wake of the baht's decline.

The TDRI forecast that $8 billion in additional standby credit would raise foreign reserves by about $3 billion above official short-term debt, the newspaper reported.

That in turn would help push up the baht to 42 against the dollar next year, Chalongphob said. The local currency is currently hovering at around 47 to the dollar.

The central bank Tuesday said official foreign reserves as of Dec. 15 stood at $26.9 billion. Thailand's short-term debt currently stands at $39 billion.

Chalongphob said the government would also need to borrow a further $1.5 billion to finance ongoing projects due to a shortage of funds and its bond issues being relegated to junk status by Moody's Investors Service last week.

He said his call for more funds was "just an option to manage Thailand's foreign debt. The suggestion needs further study.

"We are not suggesting that this is an absolute answer, but at least it provides more options on how to mange the macroeconomic policy."

If the government continues macroeconomic policy according to the IMF conditions but without additional loans, the baht will stay at around 47 to the dollar next year, Chalongphob said.

Under the IMF restructuring measures, Thailand should see foreign reserves in balance with the country's short-term debt position in 1999, when the economy should register growth of about 0.1 percent, he said.

But the economy would continue to contract in 1998, with TDRI projecting a decline of 2.2 percent and the baht continuing to stay weak against the dollar and other currencies.

Chalongphob said the additional $8 billion would help boost economic growth over the next two years, with the economy contracting by only 0.6 percent in 1998 and growing by 0.7 percent in 1999.

TDRI forecast a 1998 current account surplus of $4.72 billion, or about 3.9 percent of gross domestic product. Borrowing an additional $8 billion would cut the surplus to $3.55 billion, or 2.6 percent of GDP, the report said.