August 25, 2001	atimes.com

Editorials The IMF vs Thailand The executive board of the International Monetary Fund (IMF) has concluded its 2001 so-called Article IV consultation and post-program monitoring discussions (Thailand completed a 34-month stand-by arrangement on June 19, 2000) with Thailand and issued its verdict on August 2. The language of the Public Information Notice (PIN No 01/90, August 16, 2001) reporting on the discussions and relating the executive board assessment couldn't be more polite. It nonetheless is clear that the honorable IMF executive directors aren't exactly happy with the policies of the present Thai "authorities" (the government of Prime Minister Thaksin Shinawatra). Nostalgia for the "good old days" of the November 1997-February 2001 government of prime minister Chuan Leekpai, crushed in January 2001 general elections, is ever so obvious. Glaring IMF/Chuan regime policy failures go wholly unmentioned. The document is in fact a political cover-up cum veiled, yet unmistakable rebuke, to Thaksin's policy direction. Here is how such things read in carefully hedged, sibylline IMF speak: "Executive directors noted that the authorities have made much progress over the past few years in stabilizing the economy and fostering an economic recovery. Directors particularly welcomed the sharp reduction in short-term external debt and the rebuilding of official reserves, which have resulted in a significant reduction in Thailand's external vulnerability ... "Despite this progress, directors observed that the difficult external environment, the need for further structural reforms, and uncertainties about the future orientation of economic policies have dampened the recovery, with GDP growth likely to be around 2 percent this year and subject to downside risk." "Fostering an economic recovery"? "Reduction in Thailand's external vulnerability"? "Uncertainties about the future orientation of economic policies"? That's all just plain old nonsense. No substantial economic recovery occurred in the Chuan years. When his government was booted out of office, real GDP was 3.1 percent lower than when he assumed the premiership. What little growth occurred in 1999 and 2000 and the rebuilding of official reserves were entirely due to growth in external demand (export growth), not to any Chuan government efforts. And that very fact demonstrates that there has been no essential reduction in external vulnerability. That short-term - mainly private-sector - debt was reduced is a positive. But that in the Chuan years public - including public external - debt increased threefold from below 20 to nearly 60 percent of GDP while producing no domestic-sector recovery to speak of is a huge liability passed on to Thaksin. It has clear implications for external financial vulnerability, while at the same time severely restricting the new government's ability of enacting fiscal stimulus measures. As for uncertainties of policy orientation, there is no Thai government in anyone's memory that has spelled out its policy orientation in greater detail than Thaksin's, with the strategic commitment of creating new domestic demand to reduce external dependency the guiding principle. There is no uncertainty. There is merely IMF discomfort ranging toward outright rejection of Thaksin's orientation. The IMF directors, ever so politely echoing inaccurate and often downright slanderous international media coverage of Thaksin and his policy initiatives, are fearful that Thailand might exchange an open trade and investment regime for more inward-looking "nationalistic" policies, may be entertaining the idea of tightening capital controls, and might be adverse to fiscal consolidation they deem desirable. They are wrong in their fears. Thaksin has said in the clearest of terms (once again in an August 23 Singapore lecture) that he will pursue a dual-track policy of adhering to principal elements of the East Asian economic model, including open trade and investment, while simultaneously seeking to strengthen domestic demand and upgrading production for domestic markets. The directors are even more wrong in their rejection of policy initiatives such as the debt suspension program for farmers and village development fund ("a number of directors cautioned that the new fiscal initiatives should be assessed both in light of their lasting economic effectiveness and their impact on an already weak credit culture") and their prescription of fiscal tightening ("it would be helpful to announce a schedule at an early opportunity for the reversion of the value-added tax rate to 10 percent [from the present 7 percent"). Over 50 percent of Thai labor is still employed in the rural sector. The country cannot progress decisively without large-scale improvement of rural labor productivity. An early increase of the value-added tax would be a debilitating disincentive to domestic consumption. If anything, Thailand should lower taxes, including the corporate tax rate, in order to stimulate investment and new job creation. In 1997-98, the IMF extended stand-by credit facilities to Thailand on condition of stark fiscal austerity and happily watched as the Thai currency hit lows of well over 50 baht to the dollar in early 1998. The hapless and clueless Chuan government obliged and with that a currency and financial crisis got converted into full-blown economic crisis with negative GDP growth of nearly 11 percent. The austerity prescription, fatefully wrong on the IMF's own later admission, was reversed in the course of 1998. But by that time the damage had been done. Thailand has graduated from the IMF program and has a new government with a wealth of new ideas. At this stage, the IMF should butt out rather than interfere and intervene with its same old tiresome and time and again proven wrong policy mantra. ((c)2001 Asia Times Online Co, Ltd. All rights reserved. Please contact content@atimes.com for information on our sales and syndication policies.)

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