Thailand Seeking IMF Bailout To Shore Up Its Financial System

In a humbling turnabout for one of Asia's most dynamic economies, Thailand is seeking a bailout from the International Monetary Fund to shore up its battered financial system and halt a run on its currency that has shaken markets across three continents.

Finance Minister Thanong Bidaya acknowledged yesterday that the Thai government will have to swallow the bitter pill of an IMF-led rescue. He asserted that Thailand is like "a water tank with a leak" and said IMF assistance would "help plug the hole."

The bailout, which the Japanese government is expected to help bankroll, is shaping up as the biggest emergency financial rescue operation since the $38 billion emergency line of credit to Mexico that the IMF and the United States provided in early 1995 after the collapse of the Mexican peso.

IMF officials confirmed yesterday they are conducting "policy discussions" with the Thais, but they declined to speculate on the size of the package that Bangkok might get. Thai officials have suggested in recent days that they need $20 billion in available credit.

Thai authorities had resisted going to the IMF for weeks both because of national pride and a desire to avoid the politically painful austerity measures the IMF requires of borrowers.

But Bangkok was overwhelmed by massive sales this month of its currency, the baht, by speculators and investors who had lost confidence in the government's ability to steer the economy. Thailand's troubles have sent shock waves through currency and stock markets in neighboring Southeast Asian countries as well as Latin America and Eastern Europe, and the news that IMF aid might soon be granted triggered strong rallies in Thai stocks and the currencies of Malaysia, Indonesia and Singapore.

The IMF has recently assumed new responsibilities to contain Mexican-style crises, and Thailand is emerging as the first major test of the fund's ability to fulfill that role.

The development marks a stunning reversal for the Thai economy, which grew at rates of more than 8 percent a year for much of the last decade before slipping into trouble in 1996 amid falling property prices, slowing exports and rising trade deficits.

The crisis has stirred deep resentment among political leaders in the fast-growing region, and a war of words intensified yesterday between Southeast Asian politicians and U.S. officials attending a meeting in Kuala Lumpur, Malaysia, of the Association of Southeast Asian Nations (ASEAN).

In a weekend speech, Malaysian Prime Minister Mahathir Mohamad, known for his anti-Western outbursts, singled out billionaire American trader George Soros as the demon behind the fluctuating money markets and compared currency speculators to international criminals and drug traffickers. Currency traders buy and sell national currencies for profit in global markets, much as other investors trade in stocks, bonds and commodities.

Yesterday, Mahathir's foreign minister, Abdullah Ahmad Badawi, picked up the theme in a meeting attended by Secretary of State Madeleine K. Albright, saying that local economies "continue to be bedeviled by currency fluctuations caused by hostile elements bent on such unholy actions."

"It is the height of international criminality that the fate of millions could be subject to the mercy of a few unscrupulous traders," Badawi said in a prepared statement.

That prompted a reaction from U.S. Undersecretary of State Stuart Eizenstat, who declared: "Experience suggests that market movements are not dominated by a small group of currency speculators, let alone one person, who happens to be a U.S. citizen." He said traders take advantage of market trends, "but they do not have the ability to cause the trends."

Later, State Department spokesman Nicholas Burns said currency problems can "almost always be traced to the policies of the government involved." He called Soros "an honorable individual who has done a lot of good things around the world." Taking direct aim at Mahathir, Burns said: "It's a very serious issue to name one individual, and we don't think that's appropriate."

Soros, a 66-year-old Hungarian-born financier, is considered one of the world's premier currency speculators, and his massive selling of the British pound in 1992 was a key factor in forcing London to drop plans to join the European monetary system.

What makes him a particularly tempting target for Southeast Asian politicians is his role as a philanthropist and self-proclaimed democracy advocate. Through his Open Society Institute, he is said to be actively supporting the democracy movement in Burma, which is under repressive military rule. Malaysians, including Mahathir, have accused Soros of attacking local currencies as a form of punishment against Southeast Asian countries for admitting the Burmese junta to ASEAN.

To qualify for an IMF loan, Thailand must agree to strict conditions, according to U.S. and IMF officials. These include cuts in government spending and the drafting of a comprehensive plan for cleaning up the bad-loan mess in the nation's banking system.

Last week, a senior Clinton administration official said the United States would consider supporting an IMF loan to Thailand in excess of normal fund guidelines, which entitle Bangkok to a one-year loan of as much as $780 million. Mexico is the only other country that has gotten a loan in excess of the guidelines.

The United States does not anticipate that its own taxpayers' money would be directly included in a bailout package, as it was in Mexico's case, the senior U.S. official said. But Japan, as the region's leading economic powerhouse, will almost certainly contribute heavily to an IMF-led credit package if one is required, the IMF's deputy managing director, Stanley Fischer, said last week.

Shortly after the Thai announcement of the decision to seek IMF assistance, the governor of the nation's central bank, Rerngchai Marakanond, resigned, according to press reports in Bangkok. The reports did not give a reason for his resignation.

The IMF already has come to the aid of the Philippines, which has also been hit by the currency crisis -- though less severely than Thailand. On July 18, the IMF board approved a $1 billion loan for Manila, partly to replenish the country's foreign exchange reserves. The reserves were depleted because the government had tried to defend its currency, the peso, by buying it from speculators who were selling it.

Blustein reported from Washington, Richburg from Kuala Lumpur, Malaysia.