Thailand: Mkts Panic As Govt Econ Team Unravels - Amplifier

By JAMES HOOKWAY
AP-Dow Jones News Service

BANGKOK -- Chaos struck Thailand's financial markets Thursday as two of the country's top economic policy makers resigned, reigniting fears of a currency devaluation.

Trying to exert a steadying hand at an afternoon press conference, Prime Minister Chavalit Yongchaiyudh said he would act as finance minister until a replacement can be found for Amnuay Viravan, who resigned Thursday along with his protege, Commerce Minister Narongchai Akrasanee.

'The new finance minister will continue Amnuay's policies,' said Chavalit, who plans to seek an audience with Thai monarch King Bhumibhol Adulyadej Friday to appoint a new finance minister.

Chavalit's efforts failed to stop another hefty decline on the country's badly-mauled bourse. The benchmark SET Index closed down 18.17 points at 464.77 points, another low in what's been a disastrous year for Thai investors. The Thai baht, meanwhile, slumped in both domestic and offshore trading as investors panicked over the possibility of a devaluation.

Analysts interpreted Chavalit's move to take on the role of acting finance minister as a sign of turmoil within the coalition government and political maneuvering for control.

'It's imperative that he appoint a credible person as finance minister who will have the authority to do the two things that are necessary,' said Nikhil Srinivasan, a vice president at Morgan Stanley in Bangkok.

'One, to immediately undertake financial-sector reform; and, two, to introduce policy measures to bring down real interest rates, even if that involves an adjustment of the currency system,' he said.

Given the circumstances of Amnuay's departure, that could be difficult. Some observers reckon the two main groups in the government - Chavalit's New Aspiration Party and minority partner Chart Pattana (National Development) - are heading for stalemate.

'We're heading for a complete breakdown in the coalition government,' the chief representative of a Bangkok-based brokerage said. He said Chavalit's decision act as finance minister while better-qualified candidates are canvassed highlights the difficulty of finding someone acceptable to all shades of opinion in the government. In just two years, there have already been four incumbents.

Amnuay-baiting had become something of a bloodsport in the Cabinet in recent weeks as Chart Pattana cranked up its bid to have a greater say in economic management amid a continuing downturn in the economy.

'The general problem is that anyone who's any good won't want the job because of Chart Pattana's power. They'll face the same problems that Amnuay did,' said Rob Collins, research chief at Asia Equity Securities Co.

Chavalit's move to seize control of the Finance portfolio is 'a stalling tactic to hold off Chart Pattana from taking the finance ministry,' the brokerage chief said. He doubts whether Amnuay's replacement can be found as soon as Friday.

Analysts said Chavalit can't afford to snub Chart Pattana completely, unless he plans to bring the opposition Democrat Party into the government. After last November's general elections, Chart Pattana held the balance of power, with 52 parliamentary seats. Chavalit's New Aspiration won 125 seats; the Democrat Party, 123.

A bitter battle is brewing. 'There are three interested parties - New Aspiration, Chart Pattana, and the bankers,' Collins said.

All of this comes amid slowing prospects for Thai growth. The Bank of Thailand projects GDP growth of 5.9% in 1997, down from its initial target of 7.1%. The estimates of private economists range between outright recession and 5% growth.

The key difference between New Aspiration and Chart Pattana is their view of what's needed to get the Thai economy back on track.

Backed by heavy industry, Chart Pattana favors an expansionist approach - more government spending, more cash for export industries. 'They'll build their way out of trouble,' one analyst said.

With more links to finance than industry, New Aspiration argues for fiscal prudence. The banking industry, fearful of a major shake-out in the financial sector, backs this line.

'The political affiliation of the new finance minister will determine the market's reaction,' the Bangkok brokerage chief said. A Chart Pattana-controlled ministry 'will accelerate a financial shake-up,' he said.

This is where the stock market's biggest fears lie. Burdened by bad debt from lending to the saturated property market, many finance companies are believed to be on the brink of collapse. The central bank has pledged to help them and is encouraging wholesale mergers in the sector. But if Chart Pattana holds the Finance Ministry, investors fear the safety net may be pulled away.

Investors also worry over what a Finance Minister beholden to Chart Pattana will mean for baht policy. It Chart Pattana gets its way, 'its expansionist fiscal stance would seem to be incompatable with the fixed exchange rate,' Collins said.

He expects a greater degree of flexibility in the regime if Chart Pattana does get its way - 'Something's got to give on the currency at some point.'

The problem for Chart Pattana is that it doesn't have the strength to provide a credible replacement for Amnuay, making it increasingly likely that an outsider will be brought in, analysts said.

The short-list of candidates to replace Amnuay includes Pridiyathorn Devakula, president of the Export-Import Bank of Thailand, and Thanong Bidaya, president of Thai Military Bank PCL. Others mentioned include Olarn Chaipravat, president of Siam Commercial Bank, and Virabongsa Ramangkura, a former finance minister who oversaw the country's baht devaluation in 1984.

Some analysts think Chart Pattana will give the final stamp of approval. 'Amnuay's departure cements the party's control of the economic portfolios,' said Sriyan Pietersz, market strategist at Capital Nomura Securities PCL.

Pietersz argued that outsiders with links to the New Aspiration Party, like Olarn, are out, and that Chart Pattana may instead propose Virabongsa.

'But there's a bad smell about him for the Thais,' since Virabongsa was also finance minister during the 1991-1992 military government, Pietersz said.

'I personally think it will be the bankers who decide on the candidate, one who's acceptable to Chart Pattana as well,' said Asia Equity's Rob Collins.

Whoever replaces Amnuay will find himself constrained by the same political pressures that bound Amnuay, whose resignation was prompted ostensibly by the cabinet's reversal of a tax decision, but who was also the victim of sharp sniping by Chart Pattana.

Analysts speculated that Amnuay's a happier man without the burden of the Thai economy hanging around his neck. 'Another question is why anyone would want to be finance minister in the first place?' wondered Michael Stead, an analyst with Union Securities Co.