IMF Executive Board Completes Thai Review and Approves Next Credit Tranche

Shigemitsu Sugisaki, Deputy Managing Director of the International Monetary Fund (IMF), made the following statement: "I am pleased to announce that the Executive Board of the IMF today approved the completion of the seventh review under Thailand's stand-by arrangement. As a result, Thailand may now borrow an additional US$520 million from bilateral and multilateral sources, of which the IMF will contribute SDR 100 million (about US$135 million). This will bring the international community's financial support to US$14.1 billion, or more than 80 percent of the $17.2 billion financing package approved in August 1997.

"Directors welcomed the continued financial stability and growing signs of economic recovery in Thailand. Manufacturing production has rebounded and, though investment remains subdued, there is now the prospect of a recovery in consumption. Improved confidence in financial markets, as reflected in lower interest rates, increasing equity values, and the return of capital inflows, augurs well for economic growth in 1999, which could exceed projected levels.

"Directors stressed the importance of fully implementing the authorities' fiscal stimulus package, to underpin the emerging recovery. To this end, the authorities were encouraged to take steps to implement the increase in expenditure announced March 31, to accompany the fiscal stimulus already imparted by the cut in VAT. Directors encouraged the authorities to continue to implement fiscal policy flexibly, taking into account the strength of the recovery. They recommended that spending to bolster the social safety net should receive an especially high priority, while maintaining the overall efficiency of budgetary spending.

"Directors commended the monetary authorities for their success in lowering interest rates, while maintaining exchange rate stability. In their view, the remaining challenge was to ensure that the decline in money market rates is fully transmitted to lower bank deposit and lending rates, which remain high in real terms.

"Directors emphasized that continued progress in restructuring corporate debt and in recapitalizing banks remains central to sustaining economic recovery over the medium term. Banks have succeeded in raising a substantial amount of capital from private markets, and the state capital support schemes are now also helping to catalyze such investment. However, given still high levels of nonperforming loans, it is clear that the bank restructuring process is not yet over. Directors welcomed the authorities' intention to clarify further the implementing guidelines for the state capital support scheme so as to catalyze private investment for bank restructuring. Directors encouraged the authorities to persevere with the various initiatives to strengthen the financial system, including early privatization of intervened banks. While noting the advances made in recent months in corporate debt restructuring, they stressed the importance of faster progress in this area. In this regard, the main requirement now is the implementation of recent reforms, including of the framework for debtor-creditor negotiations and of strengthened bankruptcy and foreclosure laws," Sugisaki said.