News Brief No. 00/27

News Brief: IMF Completes Final Review of Thai Program

May 8, 2000

The Executive Board of the International Monetary Fund (IMF) today completed the ninth, and final review under Thailand's Stand-By Arrangement, which expires on June 19, 2000. Given the improved balance of payments position, the Thai authorities have not drawn under the arrangement since June 1999. Noting that the overall policy stance and economic outcomes remain positive, the Board also approved a waiver for a small breach of one performance criterion and a waiver of applicability for another performance criterion for which data is not yet available. To date, under its US$17.2 billion official financing package, Thailand has drawn US$14.3 billion from bilateral and multilateral contributors, including SDR 2.5 billion (about US$3.4 billion) from the Fund.

In commenting on the Executive Board's discussion of the review, Stanley Fischer, First Deputy Managing Director, made the following statement:

"Executive Directors commended the Thai authorities on the considerable achievements they have made under the Fund-supported program. The objectives of the program have by now been met to a considerable extent, as recovery is underway and an on-going reform strategy is in place to address weaknesses in the institutional framework and facilitate corporate debt and bank restructuring. Indeed, the recovery has turned out to be impressive: output growth this year is set once again to exceed four percent, exports are growing rapidly, the balance of payments position remains strong, and inflation is well under control.

"For the near term, macroeconomic policy should continue to be set to support economic recovery. Fiscal stimulus has been helpful and, if necessary, should be maintained over the next few quarters through the temporary extension of social spending programs. As the recovery becomes self-sustaining, it will become necessary to begin the task of fiscal consolidation, which is essential to check the growth in public debt.

"On monetary policy, the positive outlook for low inflation and exchange rate stability justify continuation of the current accommodative stance and low interest rates. The Bank of Thailand's proposed shift to inflation targeting has the potential to give monetary policy a clearer sense of direction. Prospects for this new strategy would be considerably enhanced through greater central bank independence and accountability. The authorities' intentions in this area were welcomed.

"Over the medium term, the key challenge will be to sustain economic recovery in the context of a heavily indebted corporate sector and continued weaknesses in Thailand's financial system. Thailand's market-based approach to restructuring corporate debt is delivering results, albeit slowly. In addition, the condition of the financial system continues to improve, with almost all banks now in a position to comply with the stronger prudential norms, well ahead of the end-2000 deadline. Nevertheless, the process still has some way to go. The authorities' commitment to complete reforms in the financial sector, and to speed up the process of corporate debt restructuring, was noted.

"Looking back over the last two and a half years under the Fund-supported program, Directors were impressed by the Thai authorities' successful implementation of economic policies. The authorities have begun to put in place an ambitious reform agenda that is necessary to underpin continued strong economic performance over the medium term. The authorities should be congratulated on this record of overall success. The IMF will continue to monitor developments in Thailand in the post-program phase," Fischer said.