20000223

IMF star pupil Thailannd has doubters

BANGKOK: When IMF chief Michel Camdessus told his final news conference that Asia was destined to lurk in a dangerous twilight world until it has implemented effective reforms, it was fitting that he was speaking in the Thai capital.

There are more nagging doubts in Thailand over the sustainability of Asia's recovery from its economic crisis than there are anywhere else, except perhaps Indonesia.

To be sure, Thailand, the crucible of the regional crisis, has bounced back impressively from the deep recession ushered in by the July 1997 devaluation of the baht.

Its progress prompted Camdessus to declare during a summit in Bangkok last week of the U.N. trade and development agency, UNCTAD, that Thailand had graduated "summa cum laude" -- "with highest honours" -- from the IMF's care.

The International Monetary Fund recently raised its growth forecast for 2000 to five percent; Thailand's foreign reserves have been rebuilt; fiscal and monetary policy remain stimulative, and inflation is subdued.

But the IMF and private economists worry growth will run out of steam unless Thailand's mountain of corporate debt is worked off and banks get non-performing loans (NPLs) down to a level at which they can step up lending anew to profitable firms.

"In Thailand the immediate priority should be to accelerate the pace of financial and corporate restructuring," said Shogo Ishii, the IMF's resident representative in Bangkok.

Ishii told a UNCTAD symposium he was concerned that debt restructuring to date had taken the form of rescheduling payments rather than actually writing off sour loans.

LAW TILTED IN FAVOUR OF DEBTORS

The concern is shared by investors, who drove Thai shares down 13.48 percent last week, although brokers said Bangkok also suffered from rotation of funds into markets such as South Korea and Taiwan with more red-hot telecoms and technology shares.

Crucial to investor sentiment is the outcome of protracted talks to restructure $3.4 billion in debt owed by Thailand's biggest corporate debtor, Thai Petrochemical Industry Plc (TPI).

Like conglomerate Daewoo Group in Korea and car-maker Astra International in Indonesia, the wrangling over TPI's debts is part of a battle for power raging across post-crisis Asia as owners and managers strive to keep control of the businesses that gave them wealth and influence.

Analysts say the law in Thailand is still tilted in favour of debtors rather than creditors, despite improvements to the bankruptcy regime in 1998 and 1999.

Moreover, as the World Bank points out, courts tend to interpret the insolvency criteria cautiously, because of the social and moral stigma attached to it in Thailand.

"More extensive use of the bankruptcy and reorganisation processes are unlikely until debtors accept some degree of loss of control and ownership dilution," the World Bank concluded.

With changes to the law unlikely in an election year, a leading local economist said he was concerned that NPLs still make up 38.5 percent of total loans in the Thai banking system, though this is lower than a high of 47.7 percent in May 1999.

DECISIVE DEBT RESTRUCTURING NEEDED

"We've done only the relatively easy stuff. There's not a lot else that can be done quickly," said the economist, who declined to be identified.

He said he was worried debt workout negotiations may drag on for years: "Unless we do something decisive on restructuring, the economy could gradually grind to a halt."

Arporn Chewakrengkai, economic adviser to Prime Minister Chuan Leekpai, acknowledged that restructuring was still slow and privatisation was behind schedule.

But she said the government, by proceeding gradually, had avoided the social strains the difficult reforms might have caused.

"We would like to see something faster but we have to be realistic," Arporn told Reuters. "We're not out of the woods yet, but at least we're seeing some recovery. And for the medium term, there's no question about it -- I'm optimistic."

However, IMF and World Bank officials are not alone in fretting that the economic success they are counting on will weaken the appetite of government and business for reform and cause Thailand to fall back into bad habits.

Ammar Siamwalla of the Thailand Development Research Institute said four decades of strong growth prior to 1997 had let banks get away with sloppy lending, and companies with sloppy investment decisions.

"But I hope that as we recover, part of these sloppy habits of both banks and corporations inside Thailand will change. If we do not change, there is no way we can prevent foreign speculators from taking advantage of our sloppiness. That's the lesson I learned from the crisis," he said. -Reuters