| BUSINESSWEEK ONLINE : NOVEMBER 6, 2000 ISSUE | ||||||||
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| COVER STORY
Thailand's Bank Cop (int'l edition) If anyone has reason to rage at the global financial system, it should be Chatu Mongol Sonakul, Thailand's top central banker. In the early 1990s, foreign banks flooded his economy with cheap, short-term loans that pushed corporate debt through the roof. Then, sensing financial weakness, foreign speculators forced a devaluation of the baht, sparking the Asian financial crisis. Next, the International Monetary Fund made matters worse--so say many critics--by prescribing overly harsh austerity. And now, despite embarking on nearly every reform the IMF has demanded, the financial markets remain hostile: Thailand's currency and stock markets are back near crisis levels, and foreign lenders have never returned. Yet rather than blame the IMF, Chatu Mongol reserves his anger for Thai officials whose mismanagement in the mid-'90s first put the nation in peril. ''It's not the West's function to think about how we should survive,'' he says. And instead of putting new constraints on capital, as neighboring Malaysia did in 1998, he and other officials are focusing on how to make Thailand's open financial system work better. At the heart of Thailand's strategy is a gamble that many developing nations are making. They know that, sooner or later, another global financial panic is inevitable. But at the same time, Thailand needs foreign capital to modernize its economy. Chatu Mongol and Finance Minister Tarrin Nimmanahaeminda, another self-described globalist, are betting that Thailand can indeed upgrade its financial supervision and institutions so that the next shock is not as devastating. CLOSE TABS. Since the crisis, Chatu Mongol has radically beefed up supervision of the banking sector, keeping close tabs on short-term capital flows and on external borrowing. He's also restructured the Bank of Thailand in his bid to make it ''the most transparent central bank in all of Asia.'' Thailand also no longer pegs its currency, the baht, to the dollar as it did before the crisis. That means the BoT has greater leeway to use interest rates to goose or rein in economic growth. At the same time, the government has been hammering away at companies to reduce foreign debt, which has dropped from about 150% of gross domestic product in 1997 to less than half today. That should reduce the danger of another financial collapse triggered by a drop in the baht. Instead, corporations are relying more on the nascent domestic bond market to raise new capital. Now the government is trying to improve the comatose stock market, which is down nearly 50% this year. Since 1997, just one company has bothered to go public, while 75 have actually delisted. To deepen the capital markets, Thailand in August said it would introduce a mutual-fund scheme for pension plans and such new instruments as foreign index funds. Thai officials also vow to punish speculators. In August, the central bank banned Deutsche Bank and Standard Chartered Bank from financial transactions for 10 days because both violated borrowing limits for currency trading. ''You have to decide if you want to work with Thailand or speculate,'' says Chatu Mongol. ''We won't allow you to do both.'' Although the payoff has been agonizingly slow, the hope is that the reforms will make Thailand's economy much more resilient in the future. ''When you build the foundation for a building,'' Tarrin says, ''everything is underground and you don't see progress for a long time.'' Thailand's challenge is to finish the building before the next hurricane strikes. By Frederik Balfour in Bangkok _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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