Asia Times: EDITORIAL: That unending Thai debt mess



	September 16 1999	atimes.com

Editorials

EDITORIAL
That unending Thai debt mess

Another Thai finance company (it would have been number 57) almost bit the dust the week before last. The stock market is down by 20 percent since June; the baht by 8 percent to the dollar, with more downside than upside in the near term. The only thing up in Thailand 27 months into the Asian crisis triggered by the July 2, 1997, collapse of country's currency is debt.

That's not the way the Thai government of Prime Minister Chuan Leekpai and his economic ministers would like to see the state of the nation portrayed. Recovery is well underway, is the constant official refrain, and both the local and foreign media have bought into the story. Say or write anything different and you're looked at with unbelieving eyes or labeled a hopeless pessimist.

The latest recovery hype to hit the press is the prediction, a week ahead of the release of official data by the National Economic and Social Development Board, that the economy grew by 8 percent year on year in the second quarter after having registered a 0.9 percent gain in the first. Well, the second quarter of last year was one of the most miserable in Thai economic history and some cyclical upturn is to be expected. But what exactly does that have to do with a sustainable recovery path?

The simple facts are that neither the private nor the public sector of the economy have succeeded to date in coming to grips with the debt load that's holding down the country's economic activity and that even after spending 1.34 trillion baht ($35 billion) on financial sector rehabilitation, the central bank's Financial Institution Development Fund remains far away from achieving that goal.

All in all, the Ministry of Finance said on Tuesday, Thailand's public debt had nearly doubled from 939 billion baht in November 1997 to 1.71 trillion baht at the end of June and now accounted for 34 percent of GDP compared to 15 percent in 1997. Also doubled to 801 billion baht are the Ministry's contingent liabilities arising from guarantees of state enterprise debt. Meanwhile, very little progress has been achieved in reducing the oppressive private sector non-performing loan total accounting for nearly half of all outstanding bank and financial company loans or 50 percent of GDP. New bank lending is at a virtual standstill. Financial intermediation has broken down. Businesses in essence are functioning on a cash basis only; those without sufficient cash flow are tottering on the brink. Without credit, there is no new business formation to speak of.

Those are the stark realities. For anyone - under such circumstances - to speak of economic recovery is sheer nonsense.

So, what to do? Our recommendation to the government is to forget about coming elections; to face the reality that without bad-loan resolution in-depth recovery is impossible; that throwing more public money into black holes is to invite further disasters (downgrading of sovereign debt); and to get ruthlessly tough with both debtors and creditors no matter what the immediate political consequences. The central Bank of Thailand's to date only marginally effectual Corporate Debt Restructuring Advisory Committee should impose stringent deadlines for NPL resolution. The BOT should make use of its power to intervene in the management of banks holding back on bad loan resolution and foreclosure for crony-political reasons. Examples should be set by rigorous prosecution of criminally delinquent former and present bank and finance company executives. Privatization of nationalized financial institutions should be stepped up drastically to get those institutions off the BOT's books.

All this will not make the prime minister or his finance minister popular men. ''Nationalist'' politicians and such wonderful new institutions as the ''New Free Thai Movement'', stealing its name from the resistance movement of World War II, will cry out about selling the country cheap. But so be it, should be the government's attitude, if it is serious about its goal of restoring Thailand to any semblance of economic health.