Asia Times: ANALYSIS: Thailand: Not there yet



	January 20, 1999	atimes.com

Asian Crisis

ANALYSIS: Thailand: Not there yet
By Uwe Parpart Editor, Asia Times Online

(This is the second in an occasional series on Asian economies. For the first, see ''ANALYSIS: The Comeback Kid''.)

Generally, when exporters start complaining about their country's currency exchange rate, it's a good sign that a currency crisis is about over. Well, Thai exporters are complaining; the baht has been stable in the 36-37 range to the dollar for several months and the effects on liquidity and inflation have been positive. The minimum lending rate (prime) of major Thai banks is in the 11-12 percent range - the lowest it has been in years. There is even some hopeful talk in government and banking circles that international rating agencies, as in the case of South Korea, may soon upgrade Thailand's sovereign credit rating.

Such talk is premature. Thailand is not Korea. In both countries, massive trade surpluses and consequent increases in foreign reserves to safer levels helped the currencies appreciate to well above 1998 lows and contributed to more stable exchange rates. Also in both countries, massive declines in imports were largely responsible for healthy current accounts. But unlike Korea, Thailand was unable to sustain exports at previous years' levels, registering according to various estimates a decline in U.S. dollar terms of between six and a half and eight and a half percent. Korea has half a dozen world class multinationals that kept the bottom from falling out in export performance. Thailand does not, and its low labor-cost mass production manufacturing industries continue to suffer from huge overcapacity.

Because both economies' growth performance strongly depends on exports and Korea has been able to rebuild them but Thailand has not - and is not likely to in the near term - growth projections for 1999 differ substantially. We gave a careful assessment of between zero and two percent Korean growth just two weeks ago; but as newer figures on export orders are coming in, we are inclined to go with the Korean central bank's latest estimate of three percent.

After contracting by at least eight percent in 1999, Thailand is not in for a Korea-like turnaround. Another year of contraction, albeit more moderate contraction, appears unavoidable. The substantial amounts of foreign direct investment that flowed into the country in 1998 do not translate into investments that enhance growth in any immediate sense. Most of the monies coming in are accounted for by bank recapitalization funds and purchases of bankrupt finance company assets at 35 cents on the dollar or less.

As serious as the condition of Thai export manufacturers (and in part, of course, a consequence thereof) is the state of the Thai banking sector. Non-performing loans now amount to 42 percent of loan totals (more than 2.5 trillion baht) and are still continuing to rise. According to most analysts, up to - perhaps in excess of - $20 billion in new capital is required to rehabilitate the country's financial sector. That's a tall order and the government's allocation of 300 billion baht to deal with the problem is frightfully inadequate.

In rising economies, political battles tend to be fought over distribution of the loot among contending parties and claimants. In collapsing or collapsed economies the battle is over allocation of the losses incurred. Until and unless that issue is settled, in-depth recovery cannot be expected to seriously get underway.

The issue is now being fought over in the Thai parliament, where a group of de facto bankrupt senators refuses to finalize bankruptcy and foreclosure bills that, once enforced, would have them and their political and business friends shoulder substantial portions of the economy's losses over the past 18 months. They may be able to continue to hold up the legislative process and, beyond that, use their political influence to put up administrative roadblocks to enforcement - but only at the expense of further and dangerous delay of economic restructuring and recovery.