BKK Post, April 2, 1998. INTERVIEW

[burma@xxxxxxxxxx]

April 2, 1998. INTERVIEW / ASDA JAYANAMA 

Putting our side of the crisis
Thailand's ambassador to the United Nations recently spoke to the 'San 
Diego Union And Tribune' in the United States. The following is an 
edited account.

The Thai currency crisis was the first Asian economic dynamo to topple 
and since then, a whole series of dominoes have gone down. How is 
Thailand doing in its efforts to restore stability and the value of the 
baht and, in general, cope with this economic crisis?

The first thing that we found easy was that we had a new government. As 
a result of the currency crisis, the old government was toppled because 
it couldn't solve the problem.

It fell?

Actually, it resigned. This new government... I sincerely believe that 
it's a good, clean government. It has very outstanding people on the 
economic team. And, of course, the prime minister himself is known for 
his honesty, although he doesn't have much charisma. He trusts his team. 
He knows where to go. The team doesn't have to defend what went on in 
the past. 

Second, it is clear on what it wants to do. It wants to clean up all the 
bad practices of the past. And this coincides with the wishes of the 
IMF. So it was very easy for this government to implement the IMF 
programme. 

For these two reasons alone, I think we're on a good way to recovery.

How is your relationship with the International Monetary Fund?

We implemented the IMF programme so well that we were able to negotiate 
with them to change some of the conditions which we found unreasonable 
and out of tune with the background because the IMF had assumed there 
was going to be huge inflation. That assumption was wrong because 
there's no money in the system.

Also, the IMF wanted us to run a budget surplus, 1 percent of gross 
domestic product. That was not possible because the government couldn't 
collect as much taxes as it wanted because the economy was in recession. 
So we negotiated with the IMF and my understanding is that the IMF will 
allow us deficit spending of 2 percent of GDP, which is good.

What did the IMF bailout provide for Thailand and what were you required 
to do to receive this assistance?

It's a loan package of $17.2 billion in phases to cover 34 to 36 months, 
from Aug 14 of last year. We have to talk to them on whether we have met 
their conditions. If we have met them, they will release the money. It's 
pretty tough. We do it willingly because we see that we need to do all 
of these things. They demand that we run a surplus, which we negotiated 
already, and that we should reform the financial system, which we are 
doing.

Fully transparent?

Yes. Transparent. No more crony capitalism. 

The central bank will be restructured. Part of the problem was that the 
central bank was not performing its regulatory function properly. Banks 
and finance companies are to be re-capitalised, meaning that the capital 
will be increased. We're doing all of these step by step. 

We're going to have a new bankruptcy law. It was very difficult (under 
the old system) to declare a person bankrupt. We're going to modernise 
the alien business law, which prohibited foreigners from performing 
certain activities. The changes will be consistent with our obligations 
under the World Trade Organisation.

What will happen to the weak banks?

The bad banks and finance companies will be folded. The government has 
taken over a number of banks so that it can re-capitalise them. After 
that, foreigners can buy them, up to 100 percent if they wish to.

How has your stock market reacted?

There are a lot of opportunities for foreign investors. Of course the 
stock market has gone up by about 60 percent in the last month. We say 
to ourselves this is crazy because the real economy hasn't changed. 
There's no money in the system. The major banks have yet to be 
re-capitalised so there will be more shares in the market to be sold to 
the buyers.

The law of economics is that if there will be more shares in the market 
- more supply - the price shouldn't go up, but it went up. It seems that 
foreign investors, mainly mutual fund people, feel that the Thai market 
has bottomed. The stock market is a good indicator that the real economy 
will improve in about 6 to 8 months time.

How much did the Thai economy contract in 1997?

About minus 2 percent. It will be worse this year, but by the end of the 
year is should be better. That's why we have to negotiate with the IMF. 

Where are we going to get the money to have a budget surplus? We can 
reduce spending. We have reduced so many times already. Still, we don't 
find the IMF as heartless or as inflexible as others have criticised. 

I think it's very important that we have a new government. The 
government was not responsible for the crony capitalism of the past. I 
do not forget that the crisis came about in Thailand, but it was not 
because of crony capitalism or lack of transparency alone. 

Another possible reason is that these lenders are from the West and from 
Japan. Why did they lend money to us when, as any university graduate 
who has studied or followed the events in our part of the world, knew 
the money was not properly spent? They borrowed 6 months from American 
banks or Japanese banks and then they would lend long term to property 
companies for one to two years.

It's similar to the debt situation at the time of the peso crisis in 
Mexico.

Yes. But what I'm saying is that when you look at this crisis, you 
should be a little more balanced. I don't intend to defend crony 
capitalism, but at the same time, why did these bankers lend money? They 
wanted to make money too, right? Of course. This should be taken into 
consideration. Everybody had a part to play in this crisis.

How much of a burden is repaying the $17.2 billion IMF loan going to be?

I don't think it's such a burden although we are joking - but we are 
complaining also - that if you have a baby right now, it means that he 
will have a 10,000 baht debt that he has to pay.

Just by being born?

Yes. Still, I think it's something that we can afford. We are a food- 
producing country. In the last month or two, we were able to get a 
current account surplus because of a draconian import reduction. We 
export a lot of food, not only rice, fish, canned food, vegetables and 
so on. So we are a net exporter, which is not the case with Korea or 
Indonesia.

If your government successfully privatises some of these industries, are 
the likely buyers going to be foreign corporations?

Most likely, because they're the only ones with money right now. So far 
our government has not come in and guaranteed private foreign debt. Only 
some of the finance companies, some of the banks in the beginning, but 
that was under the previous government. The new government encourages 
these companies to talk to foreign partners directly.

Do you think that these troubled Asian economies in general can export 
their way out of this crisis?

It's something that everybody is trying.

Some analysts now believe that Thailand is going to recover, that 
Korea's going to go through some real tough times for a year or so and 
then the South Koreans will be back. That the Philippines, which was 
hurt less by this than some other countries, will steady itself and be 
OK. But the big question is - well, aside from whether China is going to 
catch this disease and whether the Japanese can institute reforms - is 
how long the Suharto government in Indonesia can survive. What's your 
own assessment?

My short answer is that's their problem. But we are concerned if the 
Suharto government falls, or if there are riots, and there is no 
apparent successor to take over, it would be a vacuum. So it would 
affect us although we don't have that much of an investment in 
Indonesia.

Do you see China as wanting to assert a sort of regional influence in 
Asia and thus over the next decade or so increasing tensions in the 
region, or do you see China as basically, in foreign policy terms, 
benign and preoccupied with trying to get rich?

I think China now is preoccupied with modernisation. It wants to get 
rich. It wants to modernise its economy, but it has a political vision 
as well. There's no denying it's a big country and it sees itself as an 
important country playing roles in the world. Eventually when it 
properly reforms its economy and it feels confidence in what it does, 
the time will come.

How about Burma? Is there much hope for a lessening of repression there 
and for economic reform and political reform?

Much economic reform already has happened there because they want to 
have a free enterprise economy so that they can get revenues and so on. 
So that's not a big problem. Political reform I think is very difficult 
because the government is unwilling to let the NLD (National League for 
Democracy led by Aung San Suu Kyi)), which is a party elected by 82 
percent of the people and this election was organised by the military 
government itself, be involved in drafting the constitution, for 
example.

In Vietnam, economic reforms are stalled, and, perhaps out of insecurity 
or a sense that their political control is slipping, Hanoi has sort of 
re-imposed the political hard line and seems less flexible than it was a 
few years ago. Do you agree?

I'm not sure if I agree with you entirely there. A big problem in 
Vietnam is that the old cadres, the old political members, people in 
their late 60s and over, are still in power. The transition is not yet 
complete. It's still a one- party system. There is no political reform 
in Vietnam, that's for sure.

What role should the United States play in the Asian-Pacific region?

Many of us in the region would like the US to have a presence. This is 
not quite the same as inviting the US to have bases in the area. 

There is a difference here between countries such as Singapore who are 
more receptive to your presence and maybe bases and so on. Then there 
are countries like Malaysia and Indonesia who are more reticent, but 
nevertheless recognise the US role. Then there are countries like 
Thailand, Philippines. We are flexible. But Thailand rejected US 
requests in the past to have a floating base.

------------------------------------------------------------------------