Asia Times: ANALYSIS: It's deja vu in Thailand re Brazil shock



	January 21, 1999	atimes.com

Southeast Asia

ANALYSIS: It's deja vu in Thailand re Brazil shock
By Boonthan Sakanond

BANGKOK - It was deja vu for Thai policymakerswhen halfway across the globe last week a beleaguered Braziliangovernment first struggled to protect and finally floated itscurrency, a move that threatened to spark off yet another round ofinternational instability.

In June 1997, the Thai government did exactly the same whenit floated and effectively devalued the Thai baht - andbecame the first domino to fall in the Asian economic crisis thatcontinues to this day.

Following its flotation, the baht plunged to about half itsvalue against the U.S. dollar, sparking off currency devaluationsacross the region and marking the beginning of the most severedepression since the Pacific War.

For many Thais, the Brazilian crisis corroborates their claimthat the Thai economy's problems are part of larger structuralflaws in the global financial system.

But while most of Brazil's woes are associated with excessivepublic spending and a public sector deficit, the Thai crisis wasprimarily due to excessive consumption and private sector debts.

''Industrialized nations, as well as the International MonetaryFund, will have to move quickly to contain the global impact,''said a worried Tarrin Nimmanahaeminda, Thailand's financeminister.

Tarrin's invocation of the IMF's name has an ironic ring to itbecause he is known in Thailand as the international agency's''best pupil'' and for many Thais, Brazil represents yet anotherfailure of the body's policy prescriptions.

''The Brazilian debacle, which came despite massive IMF supportof $41 billion, puts the spotlight even more on Thailandand its economic performance based on the strict IMF medicine,''the Bangkok-based English language daily ''The Nation'' said in aneditorial.

The IMF package for Brazil, conceived in September 1998 in thewake of the Russian ruble's collapse, was a pre-emptive move meantto protect the real from the global crisis.

But critics now say this strategy by the U.S. and IMF havefailed. Others go as far as saying this policy of defending fixedor semi-fixed exchange rate regimes is a ''mistake'' in Asia,Russia and now Brazil.

As the largest economy in Latin America and a country wherewestern banks are heavily exposed, Brazil is seen as too importanta domino to be allowed to fall.

The IMF package, according to The Nation, had given ''investorstime to flee but not solved the underlying problems of theBrazilian economy."

As for the IMF-guided policy in Thailand, the editorial said thatit is time to question the Fund's core purposes of protecting theinterest of foreign creditors and further liberalizing clienteconomies to eventually attract foreign capital back.

The Brazilian debacle threatens Thai interests in direct ways.First, many analysts expect the real's devaluation to affect theThai baht too, which has appreciated considerably in the past yearfrom around 45 to 36 baht to the U.S. dollar.

Secondly, the negative sentiment toward emerging economieswill force a delay in Thai government plans to raise fundsoverseas through new sovereign bonds.

''The market may not immediately be able to distinguishdifferent emerging markets like Brazil and Thailand,'' said PisitLee-artham, Thai Deputy Finance Minister, hinting at a seriousdelay in plans to float global bonds.

Thai and other Asian exports to the U.S. are also likely to beaffected if Brazil's crisis slows down the American economy.Brazil is a direct competitor to Thailand in global export marketsfor many agricultural commodities, and the fall in the real'svalue is expected to give it an edge over the Thais.

Besides all this, Brazil itself is a big market for Thaiproducts and accounts for half of all Thai exports to LatinAmerica, so any economic problems there will be reflected infalling sales for Thai exporters.

But what has Thailand worried really is that the Braziliandebacle may also force the devaluation of the Chineseyuan, which has held steady all these months despite the globalturmoil.

Many analysts trace the slowing down of exports from Thailandand other South-east Asian economies prior to the crisis to a 1994devaluation of the yuan, which made Chinese goods vastly cheaperthan those of rivals in the world market.

''A collapse of the yuan will spark off another round ofdevaluations all over the region, ruin the Chinese banking systemand slow down its economy considerably,'' says an economist atBangkok's Chulalongkorn University.

That scenario, many believe, will be the final blow to anychances of the regions' recovery from recession.

One of the long-term implications of the Brazilian crisis couldbe, of course, to force Southeast Asian policymakers to rethink themerits of slavishly following the neo-liberal economic model ofdevelopment they have followed all these years.

When the Asian crisis began in mid-1997, advocates of neo-liberal economic policy, who prescribe fully open markets andexport-oriented economies, pointed to Latin America as an exampleof relative calm and stability because, they claimed ''it had gonethrough such turmoil before and undergone all the structuraladjustment necessary."

But Brazil proves this has obviously not been the case. Indeed,many say what may require structural changes are the basicassumptions that make up much of the ideological steam and the hot airthat accompanies the globalization of the world economy.

(Inter Press Service)

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©1999 Asia Times Online Co., Ltd.