News Brief No. 98/5

News Brief: IMF Executive Board Completes Second Review of Thailand’s Economic Program

March 4, 1998

Michel Camdessus, the Managing Director of the International Monetary Fund (IMF), said: "I am pleased to announce the IMF’s Executive Board today approved the completion of the second review of Thailand’s stand-by credit¹ with the IMF. In approving the release of the next disbursement of SDR 200 million or about US$270 million, Executive Directors strongly commended the Thai authorities for resolutely implementing the economic program in very difficult circumstances, and noted that this approach was increasingly being reflected in improved market sentiment. At the same time, Directors supported key modifications to policy targets aimed at alleviating the impact of the sharp economic downturn and strengthening the currency.

"The key modifications of the program are:

· more flexible use of interest rate policy to support the exchange rate;

· a modification in the fiscal target from a surplus of 1 percent of GDP to a deficit of 2 percent of GDP(in recognition of the adverse effect of the recession on revenues and the need to raise spending on the social safety net);

· intensified efforts to recapitalize the banking system and fully restore public confidence in its financial health;

· and a broader program of legal and structural reforms to permit the financial restructuring of corporations and revitalize private sector activity.

"The IMF Board also noted that the shift of the external current account into surplus had helped to offset much of the weakness that had been evident in the capital account, so that there was sufficient financing to assure that key external objectives—exchange rate stability and the maintenance of adequate foreign exchange reserves—would be met. The IMF will continue to monitor the situation closely to ensure that the program remains properly funded at all times including, if necessary, by the provision of additional financing," Camdessus said.