By Sandra Sugawara
Washington Post Foreign Service
Wednesday, February 4, 1998; Page C11

BANGKOK—Charnchai Charuvastr dreams of building Thailand's third major cellular phone franchise. But starting last summer, each time the president of Samart Corp. revised his projections for a new worst-case scenario, Thailand's economic turmoil ground his business plans to dust.

He thought the worst was behind him when the new year came in. But, the Thai telecommunications executive watched with horror as, day after day until last month, the nation's currency, the baht, plunged.

"When the baht dropped to 45 baht [to the dollar] in December, we thought that was just a blip in the demand for U.S. dollars before the end of the year," Charnchai said. But the baht just kept falling, spiraling past 56 baht to the dollar at one point, which he said would have made his business practically unviable.

"It's beginning to hit home," Charnchai said quietly in a recent interview. He looked exhausted as he sat in a well-upholstered armchair in the lounge of the Hilton hotel, overlooking the swimming pool.

In recent days the baht has recovered dramatically, and it was trading at 47.55 to the dollar early today. But no one knows if this is end of a wild ride or simply a pause on an economic roller coaster that has made business planning all but impossible.

From the largest Thai conglomerates to tiny, family-run businesses, Thai executives say the financial turmoil has left them struggling to stay afloat.

Sales have dried up as the economy has shifted abruptly into recession. Costs of imported supplies have doubled since last summer. And the level of overseas debts has ballooned as the value of the baht fell.

The Thai government has taken dramatic steps to try to turn the economy around. It has closed financial institutions and slashed its budget. But far more needs to be done before the banking sector is stabilized or the economy begins to grow again, analysts say.

This is a far cry from the environment in which Charnchai and other Thai executives used to operate. In recent years, Thailand had one of the world's fastest-growing economies. "During the boom years, when we had growth, any seed we planted grew," said Charnchai, smiling ruefully.

Unfortunately for Thailand, much of this spectacular growth was fueled by massive overseas borrowing. Samart's revenue shot up from $60 million in 1994 to $280 million just three years later. "We had very high growth and a lot of it was funded by foreign loans," Charnchai said.

Samart, which sells equipment, communications systems and paging and cellular services, has about $200 million in foreign debt, a small amount compared to some other companies, according to analysts.

For instance, Siam Cement group, one of Thailand's largest conglomerates, has foreign debts of about $4 billion. It is now raising prices to try to get cash to service its debt. But with sales of its construction materials expected to drop by 30 percent this year, and sales of its auto parts unit sector expected to dive by between 50 percent and 60 percent, it will be tough, said group President Chumpol na Lamlieng.

In all, Thai companies are estimated to owe about $70 billion to foreign lenders, of which about $39 billion is in short-term loans. If Thai companies are forced to pay back their loans before the baht strengthens even more, it will wipe out the entire year's profit at Samart and most other firms, Charnchai said.

"One thing keeping most of us busy these days is renegotiating our loans with our creditors. Most executives now are spending most of their time in bank offices, rather than running their businesses or being with their customers," Charnchai said.

In countries such as the United States and Japan, companies are accustomed to dealing with fluctuating currencies and hedge their risks. But in Thailand, the government had vowed to keep the exchange rate steady at about 25 baht to the dollar, so Thai executives assumed such expensive insurance against baht devaluation was unnecessary.

Thus most were caught by surprise when the government on July 2 let the baht float, after the central bank ran out of foreign currency to fight off speculators. By the end of July, the baht had tumbled 20 percent, pulling down other southeast Asian currencies. In August, Thailand received a $17.2 billion International Monetary Fund bailout, in exchange for an agreement on major banking and fiscal reforms.

Based on the new realities of August, when the floating baht hovered around 31 and slower growth was projected, Samart drew up a new business plan. "It assumed a worst-case scenario of 38 baht to the dollar," Charnchai said. And it still envisioned growth -- a new cellular phone system in Bangkok and 30 other cities in Thailand.

By the fall, however, the economy was worsening quickly and Samart was caught. Interest rates had soared to a crippling 25 percent and were climbing higher. The government's suspension of 58 ailing finance companies (56 of which were eventually shut down) created an enormous credit crunch. There were silent runs on many smaller Thai banks. Corporate bankruptcies increased. Bounced checks became such a problem that most companies began refusing to accept checks.

The result: a financial system that no longer worked for businessmen. Wasun P. Pano, who owns Bangkok's largest Mercedes-Benz dealership, said he knows businessmen who borrowed from Thai banks and then deposited the money into Citibank, where they think it's safer. Wasun himself has been tapping out his corporate credit line to the maximum and then depositing the cash in his office safe, despite the soaring interest rates he is charged.

"No one takes checks," he said, gesturing emphatically. His first safe is so stuffed with dollars and baht that he had a second safe installed. Wasun, who happened to have lived in Silver Spring from 1971 to 1973 managing 7-Eleven stores, said he has sold diamonds to New York dealers for some people who need quick cash. Other people are hawking their Mercedeses, Rolexes, airplanes and boats at Wasun's "Market of the Formerly Rich," a flea market for the wealthy he holds in his parking lot on weekends.

Flea markets have, in fact, sprung up all over town. Smaller shopkeepers say bank loans are impossible to get, forcing them to rely on family savings or other personal resources. Larger companies, like Samart, have had better success with banks. But keeping their trust has turned into a full-time job for many.

"We have a dedicated team of about five people to keep in constant contact with our bankers," Charnchai said. "Samart has been very successful in rescheduling and rolling over loans," he added. But Samart was required to pass several hurdles.

"Bankers want to know how much positive cash flow we can generate. They want to know what we're doing to cut losses. They want to see action, not just words. They want to see that investments are frozen at the moment. They want to see us raise new capital, and to bring in new partners, if necessary," Charnchai said.

Samart has tried to satisfy all those points. Beginning last fall, the company embarked on a massive restructuring project to consolidate, close down or sell subsidiaries. About 300 jobs have been eliminated, with some people redeployed to sections of the group that are growing. Charnchai has also spent much of his time trying to find new equity partners, both domestic and foreign.

Most recently, the lower baht forced Samart to scrap its old cellular network plan. Because most of the infrastructure equipment must be imported, the $200 million that Samart raised for the project will buy only half as much equipment. Strategists are trying to come up with a plan that shrinks the coverage area while maintaining revenues.

So far, Charnchai said foreign bankers based in Bangkok have been supportive of Samart's efforts, "but they are under a lot of pressure from their head office, so they try to reduce their risk." That means that Samart usually must make some kind of payment so that the local representative will have something to show to headquarters. The rest of the loan is then extended or rescheduled, he said.

Some other Thai business executives said they have not gotten the level of cooperation from their bankers that Samart has received.

Bankers say that in this tough environment, not everyone can be accommodated. Hitoshi Komasaka, general manager of the Thailand operation of Sanwa Bank, a major Japanese bank, said that in May 1997, shortly after he arrived in Bangkok, some of Sanwa's Thai corporate clients began facing difficulties. Komasaka, who had spent several years in Sanwa's New York office, said he was having difficulties deciding what standards he should use to judge the credit risk of a Thai company.

So he went to see an executive at Siam Commercial Bank, a longtime Sanwa partner in Thailand. He told Komasaka to focus on clients that have been in business for at least a decade and, preferably, have the first generation of owners still in control. "The first generation is more reliable, because they know hardship," Komasaka was told.

One Thai businessman who has dealt with Thai, Japanese and U.S. bankers said that Thai and Japanese bankers seem more interested in history and relationships, while U.S. bankers want to see cash flow and restructuring.

"But in any cases, all bankers are worried," he added.

So, too, is Charnchai, who says, "I do not think the baht has yet stabilized." He said that banking reforms have further to go, and that other large companies may yet default, adding uncertainties.

But Charnchai said he sees things turning around by midyear.

He noted that Thailand has posted a current account surplus since September, because of rising exports. In addition, he expects more foreign investments in Thailand in the coming months, bringing foreign currency into the country.

By midyear, "the baht should return to a more manageable level of between 32 to 38," he said. That's only a few months away, but by then, Samart may look considerably different, slimmed down with possibly major new investors.

"You know, we're used to dealing with problems, operating on one flat tire," Charnchai said. "But now it's like all four tires are flat and gas has run out."