## Public Information Notice: IMF Concludes Article IV Consultation with Thailand

_IMF News, February 10, 2000_

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## Bibliographic details
- Published: February 10, 2000

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### Background and crisis chronology
- A decade of high growth averaging almost 10 percent per year from the mid-1980s generated resource pressures and large current account deficits financed by short-term capital inflows.
- By late 1996 investors viewed the currency as overvalued; speculative attacks led the Bank of Thailand (BOT) to defend the peg, nearly exhausting international reserves, and the BOT abandoned the exchange rate peg on July 2, 1997.
- To replenish reserves and stabilize the economy, the authorities reached agreement with the IMF on an economic adjustment program as part of an official financing package totaling more than $17 billion.
- Initial program tightening of fiscal and monetary policies and financial sector restructuring was followed by implementation delays and political uncertainties that contributed to further depreciation of the baht and a severe recession; real GDP in 1998 fell by more than 10 percent.

### Policy response and macroeconomic developments
- Early program measures:
  - Fiscal and monetary policies were tightened to support external adjustment.
  - Decisive steps taken to restructure the ailing financial sector (insolvent banks intervened, depositors protected; insolvent finance companies suspended).
  - Government provided financial assistance for bank recapitalization, tied to debt restructuring and safeguards on use of public funds.
- Subsequent easing to support recovery:
  - Fiscal policy eased in early 1998 and became expansionary through 1998/99 to cushion the recession and restore growth; social safety net spending doubled from 1 percent of GDP pre-program to more than 2 percent of GDP in 1998/99.
  - Monetary policy eased as balance of payments and exchange rate stabilized; BOT overnight repurchase rate lowered from more than 25 percent in late 1997 to less than one percent by mid-1999.
- Financial sector reform priorities:
  - Enhanced prudential framework to be phased in through end-2000 to align capital adequacy and loan classification/provisioning with international best practice.
  - Corporate debt restructuring promoted via bankruptcy reform, elimination of tax disincentives, and encouragement of voluntary restructuring under the Corporate Debt Restructuring Advisory Committee (CDRAC) chaired by the BOT.

### Recovery outcomes (1999) and external position
- Economic rebound in 1999 under supportive macro policy and restored financial confidence:
  - Manufacturing production in the last quarter of 1999 increased by more than 15 percent from a year earlier.
  - Import growth accelerated to more than 30 percent.
  - Export growth in October/November rose to about 18 percent.
  - For the year as a whole, GDP growth is likely to reach 4 percent, with a virtual absence of inflationary pressures.
- External accounts:
  - Current account registered a surplus in 1999 of $11 billion (9 percent of GDP).
  - Gross international reserves increased to almost $35 billion, more than double the stock of outstanding short-term external debt.

### Executive Board assessment and policy recommendations
- General assessment:
  - Directors commended impressive progress in economic recovery and restoring financial stability, with rebuilt international reserves and restored exchange rate stability; recovery is broad-based but remains incomplete and fragile.
- Macro policy stance:
  - Present accommodative macroeconomic policy stance considered appropriate to sustain recovery.
  - Recommendation to continue fiscal stimulus through 2000 to maintain growth momentum and preserve social safety net spending until employment and social conditions show decisive improvement.
  - If the budget strengthens due to significantly higher than expected growth, Directors generally encouraged setting aside higher revenues for deficit reduction to stabilize public debt.
  - Fiscal consolidation needed over the medium term to reverse recent public debt increases; much consolidation expected to occur automatically with output recovery, but authorities should consider measures to broaden the tax base.
- Monetary and exchange rate policy:
  - Low money market rates' benefits had been slow to transmit to lower bank lending and deposit rates; a further generalized fall in interest rates—including deposit rates—would support recovery and bank balance sheets.
  - Directors welcomed BOT’s continued adherence to a flexible exchange rate regime and its intention to introduce an inflation targeting framework over the medium term, conditional on preconditions such as transparent institutional arrangements and clear accountability.
  - Progress toward the new Bank of Thailand Act and the Financial Institutions Law welcomed as contributing to independence of monetary management and financial system transparency.
- Financial sector and structural reform priorities:
  - Immediate priority: accelerate decisively bank and corporate debt restructuring.
  - Concerns about continuing high level of nonperforming loans; additional measures needed in three areas:
    1. Keep bank capital position under close review despite limited success under largely private sector-led recapitalization.
    2. Strengthen implementation of the new bankruptcy and foreclosure framework to rebuild credit discipline; expeditious handling of a few test cases, including those where publicly owned banks are creditors, could have salutary effects; assess and modify bankruptcy procedures where shortcomings exist.
    3. Enhance competition and efficiency by reprivatizing remaining intervened banks and avoid further delay in restructuring the state-owned Krung Thai Bank.
  - Corporate debt restructuring: welcome progress by CDRAC but recommend further strengthening of the CDRAC framework as a priority.
  - Other medium-term structural priorities: tax reform, trade liberalization, strengthening education, and improving the statistical database.
  - Supporting policies to mitigate employment impacts of structural reforms are critical to foster broad public support.

### Key statistics (Thailand: Selected Economic Indicators, 1996–99)
- Real GDP growth (percent): 1996: 5.9; 1997: -1.8; 1998: -10.4; 1999 Est. Proj.: 4.0
- Consumption: 1996: 7.5; 1997: -1.2; 1998: -12.0; 1999: 5.5
- Gross fixed investment: 1996: 7.4; 1997: -20.3; 1998: -38.1; 1999: 3.0
- CPI inflation (end period, percent): 1996: 4.8; 1997: 7.7; 1998: 4.3; 1999: 0.7
- CPI inflation (period average, percent): 1996: 5.6; 1997: 8.1; 1998: 0.3; 1999: (not separately listed)
- Gross domestic investment (percent of GDP): 1996: 41.7; 1997: 33.2; 1998: 21.4; 1999: 22.0
- Gross national saving (percent of GDP): 1996: 33.6; 1997: 31.1; 1998: 34.1; 1999: 31.0
- Foreign saving (percent of GDP): 1996: 7.9; 1997: 2.0; 1998: -12.7; 1999: -9.0
- Central government balance (percent of GDP): 1996: 1.9; 1997: -0.9; 1998: -2.4; 1999: -3.0
- Revenue and grants (percent of GDP): 1996: 18.9; 1997: 18.6; 1998: 16.2; 1999: 15.1
- Expenditure and net lending (percent of GDP): 1996: 17.1; 1997: 19.5; 1998: 18.7; 1999: 18.1
- Overall public sector balance (percent of GDP): 1996: 1.7; 1997: -2.1; 1998: -3.3; 1999: -4.8
- Cost of financial sector assistance (percent of GDP): 1997: ...; 1998: 0.6; 1999: 2.5
- Overall public sector balance, augmented for the cost of financial sector assistance (percent of GDP): 1996: -2.7; 1997: -5.8; 1998: -6.6
- M2A growth (end period, percent): 1996: 12.7; 1997: 6.1; 1998: 3.3
- Current account balance (billions of US$): 1996: -14.4; 1997: -3.1; 1998: 14.3; 1999: 11.2
- Current account (percent of GDP): 1996: -7.9; 1997: -2.0; 1998: 9.0
- Exports, f.o.b. (percent of GDP): 1996: 54.7; 1997: 56.7; 1998: 52.9; 1999: 55.6
- Exports growth rate (in dollar terms): 1996: -1.9; 1997: 3.8; 1998: -6.8; 1999: 5.1
- Exports growth rate (volume terms): 1996: -3.6; 1997: 9.3; 1998: 8.3
- Imports, c.i.f. (percent of GDP): 1996: 70.8; 1997: 61.3; 1998: 40.6; 1999: 46.4
- Capital account balance (billions of US$) 4/: 1996: 16.5; 1997: -15.5; 1998: -16.8; 1999: -9.6
- Medium- and long-term capital (billions of US$): 1996: 11.3; 1997: 9.9; 1998: 5.7; 1999: 1.8
- Short-term capital (billions of US$) 4/: 1996: 5.2; 1997: -25.4; 1998: -22.5; 1999: -11.4
- Overall balance (billions of US$): 1996: 2.2; 1997: -10.6; 1998: 2.6
- Gross official reserves (end year, billions of US$): 1996: 38.7; 1997: 27.0; 1998: 29.6; 1999: 34.8
- (Months of following year's imports): 1996: 7.6; 1997: 8.0
- (Percent of short-term external debt): 1996: 103.0; 1997: 77.4; 1998: 125.7; 1999: 249.0
- Forward position of BOT (end year): 1996: -4.9; 1997: -18.0; 1998: -6.7
- External debt (percent of GDP): 1996: 49.8; 1997: 62.0; 1998: 76.5; 1999: 59.6
- External debt (billions of US$) 5/: 1996: 90.5; 1997: 93.4; 1998: 86.3; 1999: 76.1
- Public sector external debt (billions of US$): 1996: 16.8; 1997: 24.3; 1998: 31.6; 1999: 36.5
- Private sector external debt (billions of US$): 1996: 73.7; 1997: 69.1; 1998: 39.6; 1999: (not separately listed)
- Debt service ratio (percent of exports of goods and services) 6/: 1996: 12.0; 1997: 13.9; 1998: 20.7; 1999: 20.4

*Public Information Notice: IMF Concludes Article IV Consultation with Thailand (February 10, 2000).*

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## References

- [Thailand and the IMF](http://www.imf.org/external/country/THA/index.htm)
- [Public Information Notices](https://www.imf.org/en/news/searchnews)
- [Article IV](https://www.imf.org/external/pubs/ft/aa/aa04.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/pn0005_