ECONOMY: Thai Premier Accepts Punishment from Wall Street

By Farhan Haq Reprint | | Print |

NEW YORK, Mar 12 1998 (IPS) - In a revealing demonstration of the impact of the East Asian financial crisis, Thai Prime Minister Chuan Leekpai has offered very public apologies to Wall Street while seeking support from the U.S. government and banks for his economic reforms.

Confessing that Thailand’s complacency was “quickly and severely disciplined by the market,” Chuan – who assumed office in November after the collapse of the Thai baht forced out his predecessor – presented an oddly penitent figure when he met Wall Street magnates this week.

“During the period of rapid economic growth, we were too complacent,” Chuan told a gathering of bankers and academics at a reception Wednesday night hosted by the Council on Foreign Relations and the Asia Society – two New York-based think tanks. “We opened up our economy, but our stated plans to pursue discipline were not followed up.”

Chuan acknowledged that the Thai government had not revamped its bureaucracy to make it more efficient and accountable, and had not created a competitive enough economy, noting mournfully that “there is immunity in success.”

The prime minister promised to meet the harsh targets recommended by the International Monetary Fund (IMF) to close more than half of Thai finance companies, to cut state spending in the 1997-98 budget by 16 percent and to raise taxes.

“Our relationship with the IMF is key to the revival of market confidence and economic recovery,” he pledged. At the same time, Chuan – who also is slated to meet top U.S. State Department and finance officials this week – said he would continue the political reforms the country has followed since the baht lost nearly half its value last summer. He promised that the government would make “substantial” progress this year in enacting draft laws to implement the country’s new Constitution, passed last October.

The prime minister’s unusually humble performance here coincided with a need for Wall Street’s support to roll over much of the country’s short-term debt, estimated to total some 36 billion dollars by the end of the year. This sum is about 6 billion dollars more than the Bank of Thailand’s foreign reserves.

“If we owe you something, can you extend the terms of payment?” Chuan asked Wednesday night, drawing laughter from the assembled bankers. “I can guarantee you that you will be paid, but in the short term, we have a liquidity problem.”

“The willingness of foreign banks to roll over the remaining debt will hinge critically on confidence in economic management and continued strong IMF support,” argued Mark Sundberg, a trader at Salomon Smith Barney, in a recent evaluation of the Thai economy.

Certainly Wall Street is willing to consider at least some leniency with Thailand; as Council on Foreign Relations analyst Walter Meade argued, there remains the worry that the IMF- recommended cutbacks could fuel unemployment and social unrest.

“I don’t think we have seen anything like it since the 1930s,” opined George Soros, investor and head of the Open Society Institute, in speaking about the Asian financial, crises. Moreover, he argued, U.S. bankers now could well afford to be generous since the Asian crisis had lowered wages and thereby clamped down on any rising U.S. wages. In turn, this had put a deflationary brake on the U.S. economy, which has served to boost Wall Street’s own optimism.

“Our markets are making new highs, and in true Spartan manner, we are ready to bear other people’s problems without flinching,” Soros quipped.

Chuan, however, is on a tightrope in dealing with Wall Street: he may want their generosity in rolling over debt, but he doesn’t want their worries over social unrest to fuel any further speculative panic. (The Asian crisis arose largely from the sudden exodus of Western speculators last summer when key currencies like the baht began to falter and the region’s governments struggled to shore up failing banks.)

Thailand remains one of the worst-hit economies, with several investment firms predicting the country’s growth rate to contract by 2 percent or more during 1998. The IMF has estimated that, by the third and fourth quarters of this year, unemployment could strike between 1.5 million and 2 million people – a huge amount in a nation of 60 million people.

Chuan tried to downplay concerns over any major problems, arguing, “I don’t believe that unemployment will be so massive as to cause social instability or unrest.” The government, he noted, relied on funding by the World Bank and Asian Development Bank to shore up its own social safety net and its programmes to retrain any workers who may be laid off in coming months.

However, he added, the U.S. government also could take additional steps to protect some vulnerable groups. On his current visit, Chuan is looking for assistance from Washington for one relatively privileged group now fallen on harder times since the crisis began: some 13,000 Thai students currently in U.S. colleges, whose families’ steep expenses have doubled in real terms since the baht’s collapse.

Cutbacks may be continuing in Thailand, but Chuan at least was cheered this week that the U.S. government is considering ways to ease the student’s own debt burden.