|The following item is a Letter of Intent of the government of Thailand, which
describes the policies that Thailand intends to implement in the context of its request for
financial support from the IMF. The document, which is the property of Thailand, is being
made available on the IMF website by agreement with the member as a service to users of the
IMF website. |
Use the free Adobe Acrobat Reader to view the Annexes.
Dear Mr. Camdessus:
February 24, 1998
1. In the three months since this government has been in office, we have given
paramount importance to establishing market confidence in the economic program. Most
importantly, we have adhered strictly to the program, ensuring that all performance criteria
for December 31, 1997 related to monetary, fiscal, and external policies as well as financial
restructuring have been observed, despite weaker economic activity and generally increased
regional market pressures.
2. In addition, we have taken a number of measures that have ensured cohesion in
economic policy and progressively increased market confidence. Transparency has been
greatly increased in a number of ways, especially through the full publication of our letters of
intent, as well as by the regular release of statistical information (including on the Bank of
Thailand’s net forward position). In the financial area, our bold initiatives have
included the closure of insolvent finance companies; also, we have intervened in the weakest
banks in order to preserve the integrity of the financial system; and remaining banks and
finance companies have started to recognize past losses in their financial statements and to
recapitalize according to tighter loan classification and provisioning standards. The two-tier
foreign exchange market has been effectively abolished. Far-reaching legal reform is under
way to facilitate financial and corporate restructuring, market opening, and privatization.
3. However, at this stage of the Second Review of the program, there is a need to
make some modifications to the program to take into account recent developments. In
particular, we have to contend with new challenges that have arisen from the regional
situation, and which have put additional pressures on the capital account; these have resulted
in the further depreciation of the baht, and a much larger-than-anticipated decline in
economic activity. The modifications to the program give clear priority to stabilizing quickly
the exchange rate, while limiting the magnitude and negative social impact of the economic
4. The full economic policy statement of this government is presented in the
attachment. We envisage six key modifications to the economic program that adjust it to
existing conditions and strengthen the prospects for its success:
5. Supported by our efforts to strengthen the financial system, more balanced
macroeconomic policies, and a progressively revitalized real economy, we believe that the
Thai economy is now better placed to overcome the difficult challenges that still face us.
Although the external situation will remain difficult in 1998, we are confident that the
increased capital account pressures are temporary and can be met by the financing that has
been arranged for the program. Were new pressures to arise, this government stands ready to
take whatever additional measures necessary to ensure the success of the program; this
includes measures, with IMF support, to assure that the program will remain fully financed at
all times. As such, in addition to the two program reviews already contemplated under our
program, we now envisage two additional quarterly program reviews with the IMF during
1998, tied to the end-March and the end-September performance criteria, respectively. We
will consult with the IMF on the adoption of any additional measures, and will provide any
necessary information in accordance with the policies of the IMF on such consultations.
- First, in so far as concerns about the financial system lie at the heart of the present crisis,
we are resolved to take a more proactive role and accelerate its restructuring; in particular, we
intend to phase in as quickly as possible the privatization of intervened banks; best-practice
banking standards; and a sound legal, regulatory, and institutional framework for the Bank of
Thailand (BOT), banking supervision, commercial banking, and capital market
- Second, there is room to adjust fiscal policy in response to weaker economic activity as
well as to the larger-than-anticipated external current account adjustment already under way.
We will ensure the financing of higher social spending, while maintaining a sound fiscal
position over the medium term.
- Third, while we are resolved to maintain a tight monetary stance supportive of exchange
rate stabilization, we have taken steps to ensure the adequate availability of credit to priority
sectors of the economy that will lead the economic recovery.
- Fourth, we have stepped up efforts, in collaboration with the World Bank, the Asian
Development Bank (AsDB), and the Overseas Economic Cooperation Fund (OECF) to
strengthen the social safety net, the need for which has become acute in the wake of rising
unemployment and falling real wages.
- Fifth, we have adopted bold targets for deepening the role of the private sector in the
economy, through privatization, legal reforms, and initiatives to attract foreign capital into
the financial and nonfinancial sectors.
- Sixth, based on the above policies, the stage is being set for our timely return to the
international financial and capital markets.
Minister of Finance
Governor, Bank of Thailand
Mr. Michel Camdessus
International Monetary Fund
Washington, D.C. 20431
MEMORANDUM ON ECONOMIC POLICIES
OF THE ROYAL THAI GOVERNMENT
February 24, 1998
I. Macroeconomic Framework For 1998
1. We have reassessed the macroeconomic framework in light of the sharper ongoing
decline in domestic demand and output, as well as the less favorable outlook for capital flows
following the intensification of the crisis in the region (Table). Real
output is now projected
to fall by 3–3½ percent in 1998 in the wake of the sharp contraction in domestic
demand; the modifications to the economic program are directed at minimizing the
magnitude and social impact of the economic downturn, and creating the conditions for an
early and enduring recovery of the productive sectors of the economy. Although the
recessionary conditions will dampen price pressures, profit margins have already been
squeezed considerably, so that some pickup in inflation seems inevitable—to an average
of 11–12 percent in 1998—on account of the larger-than-envisaged depreciation
of the baht. The current account is expected to record a surplus of about 4 percent of GDP in
1998, reflecting the sharp reduction of import demand. This will allow us to bring about an
accelerated reduction in the burden of Thailand’s external indebtedness. We recognize
that the realization of these key objectives will require bold restructuring and that
macroeconomic policies will be fully focused on stabilizing the exchange rate.
II. Financial Sector Restructuring
2. Financial sector reform remains the cornerstone of our economic program.
Although considerable progress has already been made in this area, the second program
review provides an opportunity to reinforce the reform effort in order to strengthen financial
institutions’ liquidity and capital adequacy with the aim of normalizing credit flows
and bringing about an enduring reduction in interest rates, thus laying the foundations for
early and sustainable economic recovery.
Asset disposal of the 56 closed finance companies
3. Following the Financial Sector Restructuring Authority’s (FRA) decisive
action to close all but 2 of the 58 suspended finance companies in early December 1997, we
have been working toward completing the institutional structure for launching the disposal
process of the assets of the closed finance companies. Working closely with World Bank
consultants, we have ensured that rules and procedures for this process will be fully in place
by mid-March 1998. We expect movable asset sales to start in February and financial asset
sales to start in March. A number of safeguards are being developed to ensure competitive
market conditions and an acceptable range of payments instruments. The timetable for key
steps in the process is summarized in Box 1.
4. It is the government’s intention to maximize sales to the private sector. At
the same time, given presently depressed economic conditions and thin markets, there is a
need to ensure that asset values are not unduly eroded by the dumping of assets, which would
adversely affect remaining financial institutions. In order to assure bids for each asset, two
new government-owned institutions, the Radhanasin Bank (RAB) and the Asset Management
Corporation (AMC), will also participate in the auctions. The RAB is expected to bid for the
highest quality assets and be guided by the strictest commercial principles. It is our intention
to attract as soon as possible a strategic foreign partner in the RAB. The AMC’s focus
will be on the lowest-quality assets and will participate effectively as a buyer of last resort;
the AMC will be charged with the responsibility of managing these assets and maximizing
asset recovery over the medium term. Both institutions will be adequately capitalized by
mid-March 1998. Progress in auctioning of FRA assets and, in particular, the roles of the
RAB and the AMC will be closely monitored and reassessed at the time of the third program
5. We recognize that for the asset disposal process, in particular, and for broader
corporate and financial restructuring, it remains imperative to strengthen the legal and
judicial framework for foreclosure and bankruptcy. These steps are presented in paragraphs
Strengthening the core financial system
6. Our strategy is to strengthen progressively the capital base of all remaining
domestic financial institutions through a combination of more realistic loan loss provisioning
and private sector-led recapitalization (Box 2). In a few cases where
banks have become
severely undercapitalized and unviable, our strategy has been to intervene to preserve public
confidence in the banking system. Since the first program review, we have focused on four
severely undercapitalized banks (with a deposit share of about 10 percent), which have relied
heavily on liquidity support from the Financial Institutions Development Fund (FIDF).
We do not anticipate further such interventions, as all remaining institutions are undertaking
- We have intervened in three medium-sized banks which were unable to raise private
capital, by replacing their managements, writing down (virtually fully) the capital of existing
shareholders, and recapitalizing them through debt-equity conversion by the FIDF.
- We have also intervened (for the second time) in another bank that was taken over by the
FIDF in 1996, by writing down its capital and recapitalizing it through the FIDF.
7. These interventions have demonstrated our resolve to strengthen the financial
system, while protecting depositors and creditors, and have been very favorably received by
the financial markets. In particular, the withdrawals by creditors and depositors at these banks
have stopped and their need for further FIDF liquidity support has ceased. Operating
procedures for these intervened institutions will be established immediately by the BOT to
limit them to low-risk activities, until they can be privatized (see below).
8. We are fully aware that the state’s share in Thailand’s financial sector
has substantially increased as a result of these interventions. It remains the
government’s paramount objective to reduce its ownership of the intervened banks as
soon as possible. Thus, the government is in the process of developing privatization strategies
with advice from outside experts for this purpose. We expect considerable progress to be
made during 1998 toward completing negotiations with domestic and foreign private
investors. Various modalities will be explored, with a view to catalyzing private investor
interest, while maximizing recovery for the public sector. Any decision regarding the
Property Loan Management Organization (PLMO) will be taken in consultation with the
9. At the same time, we are accelerating our efforts to strengthen the capital base of
remaining domestic financial institutions, and particularly the core banking system:
10. Regarding the FIDF, we recognize that its liabilities need to be restructured into
government-guaranteed bonds with medium- and long-term maturities and lower interest
rates. We also recognize that the imputed interest costs of financial sector
restructuring (including on loans and equity provided by the FIDF and the costs incurred in
setting up the RAB and the AMC) are ultimately fiscal costs that will have to be incorporated
into the central government budget to ensure full transparency. We will begin to incorporate
the interest costs of the debt of FIDF into the budget beginning with FY 1998/99, and expect
to have interest on its entire debt (net of recoveries) serviced by the budget by about the year
2000. Amortization of principal is expected to be met, in part, by privatization receipts.
- Based on the stricter rules on loan classification and provisioning that came into effect on
December 31, 1997, the BOT has signed Memoranda of Understanding with undercapitalized
banks and finance companies with the aim of raising additional capital in early 1998. This
process is well under way and several banks and finance companies have already fulfilled the
requirement specified in the MOUs; the capital increase of the large majority state-owned
commercial bank has been facilitated through a capital subscription by the FIDF.
- This recapitalization effort is a first step toward our goal of bringing capital adequacy
ratios to required levels based on loan classification and provisioning rules consistent with
best practices internationally by the end of the year 2000. The new rules will be introduced
gradually according to new regulations to be issued by end-March 1998. We are encouraging
banks, wherever possible, to accelerate the adoption of the ultimate provisioning rules, in
order to achieve an early restoration of confidence in Thailand’s financial institutions.
The BOT will strengthen its on-site examinations of the asset portfolios of all institutions and
will require MOUs with each financial institution to closely monitor their compliance with
recapitalization plans. The signing of MOUs by August 15, 1998 with all domestic banks
setting forth their recapitalization plans until the end of 1998 will be a performance criterion
under the Stand-By Arrangement.
- The encouragement of domestic and foreign private investment into existing domestic
financial institutions remains a key part of our strategy. To ensure that such investments lead
to a sounder banking system, "fit and proper" rules and licensing requirements
have recently been improved. Until the crisis has subsided, we do not expect to license new
financial institutions, except where it would facilitate the restructuring process. Given the
limited availability of domestic capital and the need to strengthen the management of banks,
we expect the recapitalization to come also from foreign investment, which remains welcome
11. To enhance the standing and effectiveness of the central bank, the government has
appointed an independent commission to identify those activities that will require
strengthening; based on the findings of this commission, we intend to form a task force
including eminent international financial experts to develop specific proposals regarding the
independence and institutional strengthening of the central bank. This is expected to result in
revisions to the BOT Law by October 1998. Capacity building and improved operating
procedures are expected to result from a major effort of streamlining, recruiting, and training;
these efforts will be supported with technical assistance from the IMF, the World Bank, and
other central banks.
12. We are committed to establishing sound legal, regulatory, and institutional
frameworks for the supervision of financial institutions, in consultation with the IMF and the
III. Macroeconomic Policies
- The initial focus will be on banks and finance companies. Accordingly, progressively
during 1998, we will: (i) review and start implementing necessary reforms of the legal and
regulatory framework, including rules for loan classification and provisioning, insider lending
and foreign exchange exposures, and accounting and auditing disclosure practices; (ii) review
the supervision function and structure with the aim of strengthening the supervisory
independence, authority, procedures, and technical capabilities, and developing an action plan
for immediate reforms consistent with the overall economic program; and (iii) finalize a plan
for a self-financed and limited deposit insurance scheme that eventually would replace the
present general guarantee.
- We will also be undertaking a comprehensive review of the roles of various financial
institutions and the way they are regulated and supervised. This will involve not only the
BOT, but also the Securities and Exchange Commission (SEC), the Fiscal Policy Office of
the Ministry of Finance, and the Insurance Office of the Ministry of Commerce. We expect
these efforts to result in a modern and efficient supervisory regime that can support the
development of a sound and competitive financial system.
13. Exchange rate stabilization will be the principal objective of monetary policy,
recognizing that the baht may remain excessively volatile in an overly depreciated range.
Thus, we intend to impart symmetric flexibility to interest rate policy. First, when the
exchange rate is under pressure, the repurchase rate will be adjusted upwards to support the
exchange rate. Second, when the exchange rate has shown sustained stability in a more
realistic range, interest rates will be brought down, as we are mindful of the potential damage
that a prolonged period of tight liquidity conditions might do to the corporate sector and to
the banking system.
14. We have also reviewed our targets for key monetary aggregates against the revised
macroeconomic framework. Although average inflation will be somewhat higher than
previously anticipated, we intend to maintain broadly the monetary program for 1998. The
consequent projected reduction in real money balances during 1998 is consistent with the
contraction in the real economy during this period. The monetary program anticipates that the
recent increasing trend in the velocity of broad money (M2A) will stabilize after mid-1998,
with the progressive return of confidence. On this basis, we expect that M2A growth will be
about 5 percent in the year to December 1998. In developing the BOT’s reserve money
program, it has been assumed that the recent increasing trend in the demand for currency
relative to deposits will also stabilize after mid-1998. Thus, the BOT will aim at maintaining
reserve money growth at about 6½ percent during 1998. On this basis, we have revised
in Annex A the end-March and end-June performance criteria
for NDA, and the indicative
targets for reserve money.
15. We are also assuring the adequate availability of credit to the priority nonbank
corporate sector, especially exporters (who continue to face difficulties, notwithstanding the
positive effects of the exchange rate depreciation), agricultural producers, and small
borrowers. Thus, the EXIM Bank of Thailand and the Industrial Finance Corporation of
Thailand (IFCT) have negotiated trade finance facilities with the Japan Export-Import Bank
and the AsDB (of about US$1.6 billion); these facilities are being supported by the increased
refinancing (up to 60 percent) by the BOT at concessional interest rates of commercial bank
loans to exporters. In addition, existing facilities provide for the extension of some subsidized
credit to agriculture (through the Bank for Agriculture and Agricultural Cooperatives), small
business (through the small Industry Finance Corporation), and low-income housing (through
the Government Housing Bank). The subsidy element in all these facilities is small and has
been taken into account in the financial program.
16. Last year’s decisive steps—trimming expenditure by 3½ percent
of GDP from the original budget and undertaking revenue measures of almost 2 percent of
GDP—have been instrumental in maintaining a tight fiscal stance during the crisis; as a
result, we have been able to meet the end-December quantitative performance criterion for
the central government balance. However, because of the further weakening of the economy,
and the net effects on revenues of the excessive depreciation of the baht, government
revenues are projected to decline by some 2 percent of GDP this fiscal year, compared with
estimates made at the time of the first program review. In addition, the further exchange rate
depreciation in recent months is expected to raise government spending by about 1 percent of
GDP. Without further measures, the result will be a projected central government deficit of 2
percent of GDP, instead of the 1 percent of GDP surplus originally programmed.
17. At this juncture, a complete offset of the projected deterioration would be
unnecessary. This is because current account adjustment is already exceeding substantially
our earlier goals. Additional fiscal actions are no longer needed to hasten such adjustment
and could risk exacerbating the current recession and delaying the recovery. Nevertheless, we
are taking some carefully designed additional measures to underline our commitment to fiscal
discipline. These measures will provide the resources to finance a strengthened social safety
net (paragraph 25); they will also ensure that revenues will indeed rise with the recovery of
output and allow the fiscal position to return to a small surplus over the medium term.
18. Accordingly, we are taking some additional revenue measures that will allow us to
raise tax revenue by about ¼ percent of GDP in FY 1997/98 (½ percent of GDP
on a full-year basis). At the same time, we have realized net savings of about ¼ percent
of GDP by cutting lesser-priority investment projects and raising spending on the social
safety net (discussed further below). The net result of these initiatives will be to limit the
projected central government deficit to 1½ percent of GDP in FY 1997/98 (Annex B),
partly financed by foreign financing and the remainder through modest domestic
19. In recognition of adverse economic conditions, we will also allow the state
enterprise sector to move from balance into slight deficit of ½ percent of GDP in FY
1997/98, which is necessary to allow the full drawdown on priority projects financed by
foreign creditors, including the World Bank, the AsDB, and the OECF. The small deficit will
be largely financed by foreign sources. However, even this target will require additional
measures on the part of state enterprises and utilities. Thus, we have taken necessary steps to
raise prices for goods and services provided by state enterprises, except in specified cases
where the move would hurt the poorest members of society (e.g., bus and rail fares). At the
same time, further cuts have been made in the investment budgets of the largest state
20. Overall, the consolidated public sector deficit is now targeted at about 2 percent of
GDP in FY 1997/98. This excludes the costs of financial sector restructuring, which are being
monitored separately and whose interest cost will be brought fully on budget in the coming
years (paragraph 10).
21. External current account adjustment has proceeded more quickly than envisaged,
with the achievement of significant monthly surpluses since September 1997. We now expect
to record a surplus of about 4 percent of GDP in 1998. Thus, current account adjustment is
providing an important offset to larger-than-anticipated capital outflows and, with the
external financing package, is assuring that the reserve objectives of the program can be
22. Regarding the capital account, the revised external outlook for 1998 (Table) is
based on the following specific assumptions on key components:
23. On this basis, we expect that the external targets of the program can be maintained
for 1998, and performance criteria for end-March and end-June have been specified in Annex
C; the reserve targets now provide for improved coverage of short-term indebtedness
compared with the original program. Indeed, market sentiment has been boosted by the early
February abolition of capital controls, and there is reason to believe that capital account
developments will evolve more favorably than presently anticipated. We will monitor closely
future capital account developments. Were pressures to revive, our macroeconomic policies
provide for a flexible response through interest rates, and there is also room in the program
for BOT intervention. Beyond that, through our discussions with the international community
and given the catalyzing role of the Fund, we are assured that the economic program will
remain adequately financed at all times.
- As previously anticipated, we expect an orderly unwinding of the BOT’s
outstanding forward and swap obligations to about US$9 billion by end-1998. At this level,
they will comprise exclusively of liquidity-related swaps with foreign and Thai commercial
banks, and we would normally expect to maintain such swaps at this level as part of domestic
- There has been considerable stability in the rollover of short-term credit lines of foreign
banks operating in Thailand. These credit lines, accounting for more than half of private
short-term debt falling due in 1998, are linked to the interoffice funding of these banks from
their home offices. We expect that the recent stability will be maintained. Although the
rollover rate has been less for the foreign-debt exposure of the Thai banks and the corporate
sector, this has, to some extent, reflected the reduced need for import financing, associated
with the contraction of the real economy and of imports. We expect the rollover rate to
improve progressively during the year as the regional crisis abates. We also are confident that
voluntary debt restructuring on a bilateral basis is under way in the corporate sector, and this
situation will remain under close monitoring.
IV. Supporting and Revitalizing the Real Sector
24. So far, we have outlined our plans for accelerated restructuring of the financial
sector, and for rebalancing macroeconomic policy in response to the latest economic
developments. We intend to complement these measures with actions to support the poorest
members of our society who have been hurt by the downturn, while setting in train structural
reforms that will revitalize the economy and provide new opportunities in the future.
Social safety net
25. This government remains acutely sensitive to the impact of the economic crisis on
the poorest sections of society. We are determined to do all that we can to cushion the impact
on those who would be most affected. In drawing up a strengthened social safety net
program, we have coordinated our policies with the staffs of the IMF, the World Bank, the
AsDB, and the OECF. The specific elements of the strengthened program are contained in
Box 3. This program will be closely reviewed to ensure that it remains
well targeted, cost
effective, and transparent. Major parts of the program will be supported by sector loans from
the World Bank, the AsDB, and the OECF.
26. This government is determined to accelerate privatization as part of the
restructuring of Thailand’s economy. Toward this end, by June 30, 1998, and with the
assistance of the World Bank, we will establish a privatization secretariat, propose legislative
reform (including a Corporatization Law to expedite the process), and develop a regulatory
framework (especially for the utilities). Our near-term privatization program involves the
following principal components:
Over the medium term, there is scope for considerable additional efficiency gains from the
privatization of the railways and the ports. In this way, we expect to raise significant
resources through privatization.
- In transportation, we intend to privatize substantially Thai Airways
International in 1998, initially through a strategic partnership with a foreign investor, with
remaining shares being offered, both, to the domestic market and employees.
- In the energy sector, we will accelerate privatization and competition. As part
of our broader strategy of encouraging the entry of independent private generators to enhance
competition, the Electricity Generating Authority of Thailand (EGAT) will initiate sales of its
stakes in Electricity Generating (Public) Co. Limited and Power Gen 2 during 1998. Over the
longer term, we intend to split EGAT into separate generation and transmission companies,
which themselves will eventually be privatized.
- In the oil sector, we will relinquish our stake in Bangchak petroleum company,
and plan to begin in June 1998. Also, we will sell part of PTT Exploration and Production,
with the aim of privatizing PTT itself by the end of 1999.
- In telecommunications, we will amend the Establishing Acts of the Telephone
Organization of Thailand (TOT) and The Communication Authority of Thailand (CAT)
during 1998, in order to prepare for their corporatization and privatization by the end of
Corporate restructuring and legal reform
27. To facilitate corporate and financial sector restructuring, we are determined to put
in place the necessary legal framework as soon as possible. In particular, the bankruptcy and
foreclosure laws will be amended shortly, in line with recommendations of technical
assistance provided by the World Bank and IMF legal experts. The new Bankruptcy Law,
expected to be amended by March 31, 1998, will permit corporate reorganizations (as
opposed to liquidations); increase the scope for out-of-court workouts (by repealing Section
94(2) of the Bankruptcy Act); and ensure fair treatment of creditors. Early administrative
steps are also being taken to allow foreclosure, with comprehensive amendments of the laws
relating to foreclosures to be proposed for enactment by October 31, 1998.
28. In other areas, as part of the modernization of the central banking function (and as
foreshadowed in the Letter of Intent for the First Review), we will be modifying the Currency
Act to bring it in line with other central banks. In addition, to facilitate foreign investment
and capital inflows, we propose to amend legislation substantially liberalizing ownership
laws, including amendments to the Alien Business Law.
|Table. Thailand: Macroeconomic
|Real GDP growth
||-3 to -3.5
| Gross fixed
|CPI inflation (end period,
|CPI inflation (period average,
|Saving and investment (percent of
| Gross domestic
| Gross national
including statistical discrepancy
|Fiscal accounts (percent of
| Central government
| Expenditure and net
| Overall public sector
|Monetary accounts (end period,
| Reserve money
|Balance of payments (billions of
| Current account
| Capital account
||-12 to -14
||-15 to -16
||-8 to -10
| Gross official reserves (end
of short-term external debt)
| Forward position of BOT (end
|External debt (percent of
| Total debt (billions of
Medium- and long-term
| Debt service
Sources: Information provided by the Thai authorities; and staff estimates.
1On a fiscal-year basis.
2Including outflows associated with the closing of swap and forward contracts
by the Bank of Thailand.
3The difference in the overall balance relative to the First Review (-US$7.7
billion) is being financed by higher gross reserves at end-1997 (US$4.0 billion), a lower
reserve target for end-1998 (US$1.8 billion), greater-than-expected disbursements under the
existing financing package (US$0.4 billion), and additional official external financing
(US$1.0 billion from the AsDB and US$0.6 billion from JEXIM).
4Excludes loans (estimated at around US$4 billion at end-1997), proceeds of
which were not brought by Thai corporations into Thailand.
5Percent of exports of goods and services.
|Box 1. Thailand: Plans for Asset Disposal of the 56
Closed Finance Companies|
|1. Classification by FRA of assets of closed finance companies
according to type, size, and quality. This information would be released to qualified bidders.
|2. FRA to define forms of payments required from
||February 1998. |
|3. Final decision by creditors of the 40 finance companies
whether to choose the note-exchange program or to participate in the FRA auction process.
| 4. Key staff of AMC appointed.
|5. Plans for adequate capitalization and financing for AMC
completed, and timetable established for the disbursements to AMC.
|6. AMC Board to finalize operating rules and guidelines,
including procedures and safeguards for ensuring that the AMC would function effectively
as the "bidder of last resort."
||March 15, 1998.|
|7. The Radhanasin Bank Board will approve rules, guidelines,
and procedures for valuation and bidding, to ensure that the Radhanasin Bank only bids for
the high-quality assets. Advisory panel also established to review proposed
||March 31, 1998.|
|8. Radhanasin Bank to acquire strategic foreign
||In the coming months.|
9. FRA to begin disposal of assets.
|10. Completion of disposal of all assets by
||December 31, 1998.|
|1The World Bank will remain in
close consultation with the authorities on these issues.|
|Box 2. Thailand: Banks and
Remaining Finance Companies|
|1. Prepare restructuring and privatization strategy for the
recently intervened banks.
||June 30, 1998.|
|2. Review progress in implementing recently issued MOUs
with undercapitalized banks and finance companies.
||April 30, 1998.|
|3. Further strengthen loan classification and provisioning
rules so as to bring these in line with international standards by the end of year 2000, and
consider their early implementation:
- Present proposal to market participants for comments; and
- issue guidelines, including a phased timetable for
|March 31, 1998|
|4. Sign new MOUs with all financial
recapitalization plans until the end of 1998, to meet the phased timetable for implementing
the stricter rules on loan classification and provisioning requirements:
- All domestic banks; and
- finance companies.
|August 15, 1998|
September 15, 1998.
|5. Review FIDF policies and operations:
- Establish new FIDF policy framework;
- begin issuance of government-guaranteed long-term bonds; and
- fully fiscalize FIDF interest costs through issuance of government bonds.
April 30, 1998.
April 30, 1998.
|6. Amend Bankruptcy Law and take initial steps to begin
foreclosures and judicial procedures.
||March 31, 1998.|
|7. Completion of amendments of laws related to foreclosures.
||October 31, 1998.|
|8. Review of legal framework for banking and supervision
with assistance from World Bank/IMF.
||June 30, 1998.|
|9. Issue new prudential
regulations including on lending to related parties and foreign exchange exposure.
||December 31, 1998.
|10. Strengthen disclosure
requirements, auditing requirements, and accounting practices.
||December 31, 1998.|
|11. Finalize plan for
introduction of deposit insurance scheme to replace the current blanket guarantee in the
||December 31, 1998.|
|Box 3. Thailand: Expanding the Social Safety
Net and Educational Opportunities|
- Up to six months severance pay by private sector employers, public enterprises, and the
||Poverty alleviation under the World Bank’s
Social Investment Project (SIP), involving expenditures of B 15 billion over three
- Financial support for job-creation programs, including: construction of road links,
footpaths, and canal cleanup under programs coordinated by the Bangkok Municipal
Authority; construction of water weirs in rural areas to conserve water.
- Expanded vocational training for the unemployed—more than 30,000
places—through programs managed by the Ministry of Labor and Social
- Improved and increased subsidies for health insurance under the Low-Income and
Voluntary Health Card schemes. NGO implemented health care and prevention programs at
the community level, focused on AIDS patients.
- Strengthening the Rural Industrial Development Program (PRID), implemented through
NGOs to stimulate industrial investment and employment in rural areas.
- Developing new anti-poverty programs focusing on decentralization, NGO partnership,
and local participation; the Social Investment Fund will support rural community programs,
the Urban Development Fund will focus on loans to help municipalities expand their
- Creation of a special monitoring unit within the Ministry of Finance, working with the
World Bank to ensure improved targeting and efficient delivery of SIP social programs.
||Social assistance programs under the AsDB’s
Social Sector Program Loan, involving expenditures of B 15–25
billion over three years.|
Labor market and social welfare policy:
Education and health:
- Establish a center for providing retraining, counseling, and placement-support services
for the unemployed. Extend social security coverage to at least six months for laid-off
workers, to include medical, maternity, disability, and death benefits.
- Expand scholarship and loan programs to minimize student dropouts.
- Protect operational budgets for teacher training and instructional materials in science,
mathematics, and foreign language education.
- Reallocate the budget toward health programs for the poor and redeploy health staff to
- Maintain program coverage for maternal, child health, and HIV/AIDS activities.
||Price-based measures to cushion the impact of the adjustment
- Maintenance of urban bus and rail fares at subsidized prices, with a budgetary impact of
about B 3 billion annually.