News Brief No. 00/60

News Brief: IMF Executive Board Discusses Recent Economic Developments in Thailand

July 25, 2000

The Executive Board of the International Monetary Fund (IMF) met today to discuss recent developments and recovery prospects in Thailand. A 34-month Stand-By Arrangement was successfully completed on June 19, 2000. During the period of the arrangement, a total of US$14.3 billion (including US$3.4 billion from the Fund) was drawn from bilateral and multilateral contributors to the US$17.2 billion official financing package. Scheduled repayments to the Fund begin in November of this year. In cooperation with the Thai authorities, the IMF will continue to monitor developments in the post-program period through the resident representative office, occasional staff visits, and reports to the Executive Board, including the regular Article IV consultation.

Though the program had already expired, Directors noted that new information provided by the authorities indicated that, at the time of the last review, Thailand had not complied with a performance criterion on external short-term debt. The noncompliance, which arose from refinancing a long term loan by lower cost short-term debt, was small, and Directors expressed the view that it had no impact on the performance under the program. The reporting error was also inadvertent. Had this information been available at the time of the last review under the program, Directors agreed that a waiver of the performance criterion would have been appropriate.

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

"Executive Directors were pleased by recent data confirming that Thailand's economic recovery remains on track. Data through the first quarter of 2000 showed that real GDP growth was positive for a fifth consecutive quarter, paving the way for growth this year of around 5 percent. Strong export performance has been a key driver of the recovery, and has also helped offset a larger than expected capital account deficit that has followed pre-election uncertainties and a weakening in market sentiment. Inflation remains low."

"With recovery not fully complete, supportive macroeconomic policies remain appropriate for the near term. Fiscal stimulus has been helpful in this regard, and should be maintained for now, preferably through an extension of social spending programs. The six month deferral in reverting to a higher VAT rate also would help to avoid any drag on consumer demand at this stage of the recovery. On monetary policy, low interest rates have been crucial to easing the debt service burden of firms and restoring the health of the financial system. With inflationary pressures absent, Directors supported the Bank of Thailand's intention to maintain an accommodative monetary stance."

"In the financial sector, a continuing decline in non-performing loans was evidence that Thailand's market-based approach to corporate debt restructuring was working. Even so, Directors thought that more rapid progress in this area was very clearly needed. They welcomed plans to strengthen the court process and increase the number of judges, and to facilitate out-of-court settlements with the help of mediators. Directors also placed considerable emphasis on pressing ahead with the restructuring of state-owned banks, which account for more than half of system-wide nonperforming loans."

"Directors cautioned that pre-election uncertainties called for continued attention to sound economic management, while noting that the authorities' solid track record over the past few years should provide some comfort to the market. Nevertheless, Directors urged the authorities to persevere with the structural reform agenda, particularly in the areas of corporate debt and bank restructuring. They looked forward to the next review, which could focus more on the medium term issues," Fischer said.