Recovering Thailand doesn't need IMF bailout: Veerathai

Bank of Thailand governor Veerathai Santiprabhob acknowledged on Monday (July 20) it would take time for the economy to recover to pre-pandemic levels. But he vowed to extend this year’s Bt500-billion soft loans package into next year to fuel the recovery.

Veerathai was speaking at the central bank’s symposium on how local businesses can survive in the post-Covid-19 era.

The pandemic has hit economies around the world hard, prompting over 100 countries to ask for IMF rescue packages. But Thailand would not be one of them, said the BOT chief.

“For people raising concerns over whether we will have to ask for IMF help, the answer is that we do not need it, despite 102 members already requesting IMF aid,” said Veerathai.

The Thai economy is expected to fall further than many in the region this year, with worse to come in the second quarter before it gradually recovers, he said, forecasting the economy could return to pre-Covid-19 levels by the end of next year.

He said that no single policy could handle the current crisis effectively, and the government needs to coordinate many policies and measures.

For its monetary policy, the central bank has this year cut its key policy rate three times to a historic low of 0.5 per cent.

Capital has flowed out of the country but not at an alarming rate, given that Thailand is still running a small current account surplus. So the country could maintain a low interest rate, he said. However, local financial markets are also flooded with liquidity, which together with excess liquidity in the global market could cause the baht exchange rate to fluctuate greatly, he cautioned.

“The central bank’s biggest concern is employment, because the Covid-19 pandemic has adversely affected the labour market in both the services and manufacturing sectors, where large numbers of workers were laid off,” he said. Even if the pandemic situation improves, many workers may not be able return to work, he warned.

He pointed out that current overcapacity and many factories had also installed robots to replace workers.

As a result, new graduates will find it more difficult to get jobs over the next two years.

“The challenge during this two-year period of how to ensure new graduates aren't scarred is a cause for concern,” he warned.

He was optimistic, however, that bad debt in the banking system will not lead to a repeat of the 1997 Asian financial crisis.

“The impact of Covid-19 will definitely see non-performing loans [NPLs] rise, but as we have implemented preemptive measures, NPLs will not spike,” he said.

Debt restructuring  will allow everyone to survive and avoid the prospect of a 1997 financial crisis scenario, he said.

Regarding its soft loan package, the central bank will extend the deadline for applications from the end of this year to the end of 2021, he said.

Moreover, the central bank is in talks with the Thai Credit Guarantee Corp(TCG) over credit insurance after the two-year soft loan package ends, Veerathai added.

The central bank predicts the Thai economy will contract 8.1 per cent this year as exports and tourism are hard hit by the virus crisis. It forecasts the economy will now gradually start to recover as lockdown restrictions have been eased.

Meanwhile, Somkiat Tangkitvanich, president of the Thailand Development Research Institute, predicted a rise in the number of poor along with a deterioration of the government’s fiscal position in the next five or six years.

The virus impact will see more people working from home. For businesses to survive, they have to cut costs, diversify risk and connect with networks. Holding cash will be the best option, he suggested.

Strong businesses may have an opportunity to acquire small regional businesses at cheaper prices. New businesses may emerge, as did e-commerce giant Alibaba when SARS hit China last decade, he added.