IMF approves $16bn in loans to bail out ailing Thai economy
Tuesday 12 August 1997
Japan is to play the biggest role of any nation in the bailout, pledging Thailand $4bn, a figure matched only by the IMF in a package which could be expanded to $20bn in loans for Thailand to bolster its tarnished image with investors.
The money is intended to shore up Thailand's foreign reserves in a bid to calm flagging confidence in the country, which sparked a currency crisis last month, sending the Thai baht plummeting by 25 per cent.
The crisis also affected other economies in the region and 10 countries from four continents, including eight from Asia, are to help in the bailout. Hong Kong, Malaysia, Australia and Singapore each agreed to lend Thailand $1bn; South Korea and Indonesia are to contribute $500m in loans. China is also participating in the scheme designed to shake Thailand out of its dire economic malaise.
"The impressive part of this package is the extremely significant contributions from countries in the Asia-Pacific region," said Eisuke Sakakibara, Japan's vice finance minister for international affairs. It will be the world's second-largest economic rescue plan, after the $50bn offered to Mexico in 1994.
Analysts said the large portion offered by Asian countries indicated a new concern for region-wide economic stability.
"This is quite unusual," said Mark Sunberg, a regional economist at Salomon Brothers in Hong Kong. "It indicates that certain countries in the region are concerned about stabilising Thailand's economic situation to prevent the damage from spreading."
Donald Tsang, Hong Kong's financial secretary, confirmed those concerns that a failing Thai economy might bring down the economies of its neighbours: "As a regional finance centre, we can't just sit idly by."
Japan's role in brokering the offer signals a stronger role for Japan in an increasingly interdependent region. "This is a natural development for Japan, as there is an implicit rule in the international community that the strongest country takes the lead," said Robert Feldman, economist at Salomon Brothers Asia.
Once the world's fastest-growing economy, in recent years Thailand has lost much of its lustre. Drops in crucial exports, an overstretched banking sector dogged by bad loans to property developers, and high unemployment have combined with government inaction to present Thailand with its biggest economic crisis.
The decision to seek IMF help was taken last month after a bitter de facto devaluation of the baht, heavily defended by the Thai central bank on the currency markets. As stringent IMF reforms, such as tax rises and public spending cuts, are implemented, concerns are growing of political instability in Thailand, a country in the past prone to military intervention.
The government of Chavalit Yongchaiyudh, the prime minister, was elected on a pledge to return the country to the prosperity and the economic boom times that have, over the past 20 years, made Thailand one of the world's most dynamic Asian Tiger economies. But his fallback on the IMF is being viewed as a tacit admission of failure.
Few details have been finalised, but in exchange for the rescue plan, the IMF is demanding stringent control over the Thai economy. In Bangkok, Chaturon Chaisaeng, the Thai deputy finance minister, said the government had already agreed to more than $2bn of cuts in public spending demanded by the IMF. He said public health, schools and welfare programmes would be unaffected, but the political consequences of implementing such measures may be disastrous for the government, and diplomats remain sceptical that the Bangkok administration will find the political will to implement them all.
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