[stop-imf] NYT: Thais Against IMF

[Robert Weissman]

New York Times
June 26, 2001
Their Financial Crisis Past, Thais Remain Disillusioned
By MARK LANDLER

     BANGKOK =D1 Nearly four years after it devalued its currency,
unleashing an economic typhoon across Asia, Thailand is still reeling. And
while the
      storm has passed, its aftereffects have proved stubbornly hard to
shake, leaving this country in chronic distress.

Thailand's banks are hobbled by bad debt; many of its biggest companies
are bankrupt; and its fragile recovery is sputtering, hurt by the economic
slump in the United States, Europe and Japan.

For many Thais, the latest setback confirms what they had suspected since
the crisis of 1997- 98 =D1 that their country can no longer depend on the
global economy. Once the darling of the International Monetary Fund and
foreign investors, Thailand is turning inward under the weight of its
troubles.

With many neighbors in similar or worse straits, some analysts say that
Thailand's nativism could take root elsewhere in Asia. From Malaysia to
Taiwan, people are struggling to live without the export-led growth that
lifted them out of poverty in the last 20 years. Bewildered and bitter,
they are starting to question the economic policies that have been a model
for the region.

"People on the streets believe that the I.M.F.'s way of solving problems
is wrong," said Tongchat Hongladaromp, newly appointed chief executive of
the Thai Petrochemical Industry Company, the nation's largest corporate
bankruptcy.  "We've got to find a solution that works for Thailand."

In its hunger for change, Thailand ousted its pro-Western prime minister
in January, replacing him with a populist billionaire, Thaksin Shinawatra.
Mr. Thaksin has charted a sharply different course, emphasizing growth at
home over exports, funneling billions of dollars to banks and farmers and
dismissing those, like the governor of the Thai central bank, with whom he
disagrees.

This go-it-alone strategy is fraught with risks, not the least of which is
a threat to the prime minister's hold on office because of a corruption
investigation.

Along with the abandonment of I.M.F.-style prescriptions has come a surge
in economic nationalism. Thailand is drafting policies to help local
products compete with imports. It has raised the fees for foreigners' work
permits.  And state agencies have been prohibited from hiring non-Thais as
consultants.

This tendency toward isolationism stops short of policies in Malaysia,
where the leader, Mahathir Mohamad, inveighs against neocolonial
financiers. Thailand has not imposed controls on its capital markets, as
Malaysia did in 1998.  And it remains a popular destination for foreign
direct investment and tourism, though new investment has fluctuated in
recent months because of confusion over Thai policies.

While Mr. Thaksin is unnerving some foreign investors, he has won broad
domestic support and respectful notices from a few analysts, who are
cheered that Thailand is trying something different.

"He's right to say that Thailand shouldn't rely on foreigners," said
Christopher Wood, a regional strategist at ABN Amro in Hong Kong. "It's
just plain common sense that Asia shouldn't put its bets on exports."

The I.M.F. itself has taken more of a hands-off role in the last year,
since its loan program to Thailand ended. While the lending agency is
drafting a report on Mr. Thaksin's policies, its officials are not eager
to revive the debate over how best to repair the economy.

"There isn't a particular prescription the fund has, which would or
wouldn't work," said Reza Moghadam, the I.M.F. mission chief for Thailand.
"The question is, what are the policies which will deliver sustainable
growth?"

In many ways, Thailand's next move depends on what happens to its leader.
The National Countercorruption Commission ruled in December that Mr.
Thaksin, who amassed a fortune from his telecommunications conglomerate,
concealed some of his assets when he was deputy prime minister in 1997.

A constitutional court is considering whether to uphold the ruling. If it
does, Mr. Thaksin could be banned from politics for as long as five years.
While his coalition would retain a majority in Parliament and he could
eventually return, it is doubtful a caretaker prime minister could carry
out his policies as effectively.

Even if Mr. Thaksin stays in power, he will have to deliver on a campaign
that promised something to almost everyone. The government pledged $23,000
to each of Thailand's 70,000 villages for small-scale loans.

It is also setting up a national asset management company, which will take
over many of the bad loans from banks in an overdue effort to clean up the
financial system. Previous attempts to do this failed because toothless
bankruptcy laws emboldened debtors to be recalcitrant.

Analysts worry that unless these programs are run with discipline, they
could easily devolve into corrupt bailouts. "I don't see Thaksin cracking
the heads of his friends and supporters to do what is right instead of
what is popular," said Jeff Earhart, research manager at DBS Thai Danu
Securities here.

Some analysts also worry that if the verbiage of economic nationalism is
pushed too far, it could mutate into xenophobia. Thailand has tended to be
less suspicious of foreigners than other Asian countries because =D1 as any
schoolchild here will tell you =D1 it was never colonized.

But many people here, from tuk- tuk drivers to tycoons, think that
Westerners took advantage of Thailand's desperation after the financial
and economic crisis to scoop up assets on the cheap. In the election
campaign several months ago, this suspicion was used to great effect by
Mr. Thaksin's party, known as Thai Rak Thai, or Thais Love Thais.

"Fear is a great motivator," said Amaret Sila-On, the chairman of the
Stock Exchange of Thailand. "There have been genuine attempts by
politicians to use nationalism as a tool to get what they want."

The financier George Soros canceled a speech in Bangkok in February when
protesters, including some respected local businesspeople, threatened to
pelt him with rotten eggs and fruit. They blame Mr. Soros for the collapse
of the Thai baht in July 1997 because he speculated in the currency.

"As a Thai, it is my duty to protect the prestige of my country," said
Amarin Khoman, a shipping executive who organized the campaign. "I could
not let him come and spit in our faces again."

Fear of foreigners has been a recurring theme in Thailand's efforts to
overhaul its debt-ridden banks and companies.

Mr. Amaret used to run the Financial Restructuring Authority, a state
agency set up to deal with Thailand's 58 finance companies. Like the
savings and loan institutions in the United States that failed in the
1980's, these companies used looser lending standards than the banks did
and were the first to crumble.

Mr. Amaret closed all but two, and auctioned their assets to the highest
bidder. He drew harsh criticism for selling half the assets to foreigners.
The furor discouraged the prime minister then, Chuan Leekpai, from
applying a similar remedy for the banks.

"If he had shown the courage to sell those assets to the highest bidder,"
Mr. Amaret said, "we would have been out of the woods by now."

A few banks, like DBS Thai Danu, wiped out their debt problems by selling
their portfolios of bad loans at deep discounts. Most others simply
shuffled the loans into asset management companies. Goldman, Sachs
estimates that 44 percent of the total loans made by Thai banks are
unlikely to be repaid.  That compares with 37 percent in South Korea and
16 percent in Taiwan.

Next month, Thailand's government-sponsored asset management company is
expected to begin taking over the bad loans. Once this flotsam is removed
from banks' balance sheets, Mr. Thaksin says, they will resume lending.

Analysts are guardedly optimistic about the bailout's prospects, noting
that the new company has been granted extraordinary powers to restructure
loans, foreclose on assets and liquidate companies. But bankers warn it is
not a cure-all.

"What this country needs is legal reform," said James Stent, senior
executive vice president of the Bank of Asia, Thailand's 11th-largest
bank. "If cases could work themselves through the courts smoothly, the
banks could rid themselves of the loan problem in two years."

No case better illustrates the perils of overhauling a debt-laden company
than Thai Petrochemical Industry. Established in 1978, the company
expanded rapidly in the 1990's by borrowing heavily in unhedged foreign
currency. When the baht collapsed, the company tumbled into insolvency.

What followed was a nearly four- year battle =D1 not yet ended =D1 as Thai
Petrochemical's 140 creditors tried to recoup about $3.7 billion in loans.
In December, Thailand's bankruptcy court approved a plan to restructure
the company and install outside managers to run it on behalf of the banks.

But its founder, Prachai Leophairatana, has fought the plan every step of
the way. One of his strategies has been to portray the creditor-appointed
managers =D1 an Australian workout firm, Ferrier Hodgson =D1 as predatory
foreigners.

"It took 20 years to assemble this company," Mr. Prachai said in an
interview. "Now they are selling off the arms and legs. When it's all
over, we'll wind up in Shell's back pocket. You'll see."

Mr. Prachai offered scanty evidence to back up that assertion. But among
the company's rank and file, his assertions of foreign exploitation have
resonated. Though he was ousted as chief executive by the
creditor-appointed managers in December, Mr. Prachai still reports for
work each day at company headquarters here, where he commands the loyalty
of at least some of his former employees.

"If I wanted to play a dirty trick, they couldn't run a single factory,
let alone all the factories in the company," he said.

Such warnings no longer surprise the managers from Ferrier Hodgson. They
employ bodyguards after having been roughed up by angry employees while
walking into meetings of creditors, accused of embezzling $400,000 and
detained by the police on charges of violating their work permits.

Yet Ferrier Hodgson may have defused Mr. Prachai's contentions about
foreign exploitation by recently appointing Mr. Tongchat, a Thai citizen,
as president of Thai Petrochemical. He replaced Anthony J. Norman, a New
Zealander who had become a target for anti-foreign vitriol.

Mr. Norman said he had planned to recruit a Thai even before Mr. Prachai
made it an issue. But he acknowledged it would help in the public
relations battle. "The company is 60 percent owned by Thais and is being
managed by a Thai national," he said. "What kind of foreign influence is
that?"

And Mr. Tongchat said the fears stirred up by Mr. Prachai were unfounded
and at odds with Thailand's culture.

"Our tradition is to welcome foreigners," he said. "With time and good
explanation, I think we can make things clear to our people."