News Brief No. 99/67

News Brief: IMF Executive Board Completes Thai Review

October 5, 1999

Michel Camdessus, Managing Director of the International Monetary Fund (IMF), made the following statement: "I am pleased to announce that the Executive Board of the IMF today approved the completion of the eighth review under Thailand's Stand-By arrangement. In principle, this will allow the Thai authorities to draw a further $500 million from the official financing package (including some $137 million from the Fund). However, in view of the gathering recovery and stronger external position, the authorities have indicated that they do not intend to use these additional resources. I strongly welcome these signs of success."To date, Thailand has drawn US$14.1 billion from bilateral and multilateral contributors to its US$17.2 billion financing package.

"Directors welcomed the marked improvement in Thailand's economic prospects. They noted that the recovery is now underway with growing signs of a rebound in manufacturing, exports, and domestic consumption prompting an upward revision in the 1999 growth forecast to 3-4 percent. To consolidate this process, which is still at an early stage, Directors stressed the importance of maintaining supportive macroeconomic policies and accelerating corporate and financial sector reforms.

"On fiscal policy, Directors emphasized the importance of the timely implementation of the authorities' expenditure program, with priority given to the social safety net. They welcomed the expansionary stance of fiscal policy. At the same time, given the need to reverse the rise in public debt over the medium term, they welcomed the authorities' intention to allocate any windfall revenues from a stronger than expected recovery to reducing the fiscal deficit below the programmed level.

"Directors commended the authorities' monetary policy as supportive of recovery. Deposit rates were slowly falling towards the already low level of money market rates, and Directors observed that this could provide scope for some lowering of lending rates. However, they expressed concerns at the slow pace of the decline in deposit rates.

"Directors agreed that sustained economic recovery will hinge on success in restructuring corporate debt and in recapitalizing banks. While welcoming the progress that had been made in these areas, they noted that only limited headway had been made so far in reducing nonperforming loans, and encouraged the authorities to intensify efforts to bring about a decisive turnaround in this area. In this connection, the authorities were commended on their intention to encourage the creation of private asset management companies to promote debt restructuring. Directors observed that this step would need to be supported by a number of tax and legal changes, including firm implementation of new bankruptcy and foreclosure laws. They took note of other initiatives to improve economic efficiency over the medium term, and in particular urged the authorities to broaden the scope of recent tariff cuts, in conjunction with the rationalization of the tax system. Directors also welcomed the authorities' efforts to strengthen Thailand's social protection system.

"Directors were pleased with the success achieved by Thailand in the implementation of its stabilization and reform program. In light of the stronger external position, they supported the authorities' intention to treat the present arrangement as precautionary," Camdessus said.