Changes Likely In Thai Imf Package

The International Monetary Fund (IMF) is expected to announce a few adjustments to key targets of a $17.2 billion bail-out package when it completes a review of the rescue deal's terms, analysts said yesterday.

They believed the IMF would almost certainly review a key package target which requires the government to achieve a surplus of one per cent of gross domestic product in the 1998 (October-September) fiscal.

Thailand had requested the IMF to relax some of the requirements set out in the bail-out package which it accepted last August. But analysts did not foresee the IMF extending any new standby credit lines to Thailand besides releasing another tranche of loans in recognition of progress made in financial restructuring and cost-cutting. The IMF would, however, continue to insist that Thailand maintain high interest rates and continue much-needed financial reforms and austerity measures, the analysts said.

 

Their comments came as a senior IMF official said on Thursday that any relaxation of the terms of the agency's $17.2 billion multilateral bail-out package for Thailand should be done cautiously.

"I prefer caution instead of exuberance. Any relaxation has to be done very cautiously," said Hubert Neiss, the IMF's Asia-Pacific director, who is here with the review team from the world agency. Neiss told reporters the review would be completed on Friday. Details were unavailable.

The government sought adjustments because it believed some terms might be hard to achieve given the present economic hardship and side-effects from regional currency turmoil. The Thai administration has pared budgetary spending almost to the bone but revenue collection has failed to meet targets because of the slowing economy.

Furthermore, the value of the baht has plunged sharply since the bail-out package was formulated. Markets are anxiously waiting to hear the result of the IMF review. Thai Finance Minister Tarrin Nimmanahaeminda said earlier this month he hoped to announce revised terms for the package by February 24, if all went well with the IMF review. "Any changes will come in the targets for fiscal balance and the current account. I am not sure if the one percent surplus target will go or a government spending target will be put in its place instead," said Richard Henderson, head of research at Krungthai Thanakit Plc. He believed the old current account target of a deficit of three percent of GDP would have to be changed to a surplus, given the positive trend in the Thai account in past months.

Henderson believed the IMF might ask Thailand to accept higher prices of some goods and services that usually came with tough economic conditions like those existing now. A Thai Budget Bureau official said the IMF might agree to Thailand having a relaxed balanced budget rather than come up with a cash surplus, but taxes might have to be raised. "The adjusted neutral budgetary position still requires the authorities to pursue austere measures which may include some moderate tax hikes," the official said, adding high rates would remain until the baht stabilised.

"They (IMF) would like to see a more stabilised baht, probably to the 32-35 baht/dollar range, before supporting lower rates," the official said. James Mitchell, strategy analyst at Saloman Smith Barney in Singapore, said the market expected some changes to the package terms to give Thailand ability to manoeuvre in other areas.

"Given current criticism of the IMF, it won't be portrayed as relaxation of terms, rather a shifting of emphasis," he said.

Kitti Limsakul, economics lecturer at Bangkok's Chulalongkorn University, said the IMF was not expected to relent on high interest rates and monetary reform measures. Any relaxation could only come when Thailand succeeded in salvaging its weak financial institutions and made transparent moves to manage assets of the 56 closed finance companies.