By Eva Cheng
Under orders from the International Monetary Fund, the Chuan Leekpai government is busy preparing the sale of some of Thailand's most important public assets: Thai Airways International, the Electricity Generating Authority of Thailand, Electricity Generating (Public) Co., Power Gen 2, the Petroleum Authority of Thailand, Bangchak Petroleum, PTT Exploration and Production, phone carriers the Communication Authority of Thailand and the Telephone Organisation of Thailand, other utilities, railways and ports. Fifteen public establishments are up for grabs initially, starting in the next few months.
To handle these and future sales, a privatisation secretariat will soon be formed, with the World Bank's "help".
Laws will be amended to remove any legal impediments and to maximise protection for new owners. Changes to restrictions in the Alien Business Law and the bankruptcy and foreclosure laws are a top priority because the strongest contenders will come from overseas.
Local capitalists' ability to compete with foreign capital has been severely undermined by the plunge in asset prices, crippling interest rates, banks' reluctance to provide finance, defaults by debtors, forced closures and other problems arising from the near halving of the baht's value since July.
Many Thai capitalists, especially those in finance, will be forced to sell their businesses: 56 of Thailand's 91 finance companies were closed last year on IMF orders, and their assets will soon be auctioned.
To prevent sale prices sliding to rock bottom levels, the state-owned Radhanasin Bank (RAB) and the Asset Management Corporation will act as last resort bidders, with the former focusing on the best quality assets. But the RAB itself will also be up for sale — "as soon as possible" to a "strategic foreign partner", according to Bangkok's agreement with the IMF.
The government recently intervened in four of Thailand's 15 banks. The managers of three were replaced and much of their capital base written off to cover bad loans. To stay in business, Bangkok ordered that all banks must find new capital (i.e. co-owners), at the likely price of surrendering control. Since October, foreigners have been allowed to hold majority interests in Thai financial institutions for 10 years.
Non-finance businesses also need new shareholders to stay alive. The likely sales of these and the public and finance sector businesses mark a severe weakening of the Thai capitalist class in relation to foreign competitors.
Bargains galore
Tussles over the spoils are under way. Dutch bank ABN AMRO has acquired 51% of Bank of Asia, Development Bank of Singapore 50% of Thai Danu Bank and Japan's Sanwa Bank 10% of Siam Commercial Bank.
Citibank, however, suspended its well-advanced purchase talks for First Bangkok City Bank, ING pulled out of negotiations with Siam City Bank, and several Taiwanese banks dropped their bid for Bangkok Metropolitan Bank. Credit Suisse, First Boston and J.P. Morgan are contesting a bid by Westdeutsche Landesbank for Finance One.
AP Dow Jones and AAI have acquired a stake in the Nation newspaper. A foreign consortium, of which George Soros is a partner, bought a share in a steel mill. The US's GE Capital has raised its interests in several existing joint ventures, and Taiwan's Yuanta Securities has done so in Securities One.
US power company Sithe Pacific is still negotiating with Cogeneration Plc; Nynex, also from the US, with Telecom Asia; and Taiwan's China Development Corp with Bangkok First Investment Trust.
These foreign capitalists wouldn't bother negotiating if the targets weren't likely to be profitable. But whether a deal can be struck hinges on price. A major market reversal, like the one since July, provides them with a golden opportunity not only to kick open Thailand's door, but to do so at greatly reduced costs.
IMF prescriptions — on monetary priorities (high interest rates), fiscal targets, privatisation, capital controls (abolished in February) and tough capital and other requirements of banks (which led to the need for emergency capital injections) — ensure the key factors are working in foreign capitalists' favour. Assets that previously weren't likely to be available are now on offer.
In the earlier phases of the crisis, the government, dominated by business and military interests, followed a long "tradition" to back Thai business. In December, the central bank revealed that it had "lent" 650 billion baht to banks and other financial institutions, of which B440 billion went to the 58 finance companies which had been suspended since August (56 of them were later closed down).
At the pre-crisis rate of around 25 baht to a US dollar, B650 billion amounts to US$26 billion. To get these figures into perspective: Thailand's US$30 billion foreign exchange reserves in June were almost halved to US$16-17 billion in September. In addition, the central bank had sold US$23.4 billion worth of US dollars that it didn't have, through forward contracts, before August; this bill has become part of the national debt.
These defend-the-rich measures led to serious troubles this time around.
Deeper into debt
To meet tight fiscal targets, already last year Bangkok cut government spending by 3% of GDP and extracted extra revenue equivalent to 2% of GDP.
But things are getting worse: further weakening of the baht alone is expected to push government spending up by 1% of GDP this year, and further weakening of the economy is expected to cut government revenue by 2% of GDP (B133 billion).
Though the IMF agreed in February to "relax" the central government fiscal goal to a deficit of 2% of GDP, from November's demand of a surplus of 1% of GDP, the Chuan government will still need to cut spending severely and raise revenue to keep its head above water. Already, charges for all utilities and state services have gone up, hitting the general population, already squeezed hard by rising unemployment and inflation. To ease social discontent, bus and rail fares were exempted from a rise for now.
After its current account deficit doubled from US$7.5 billion in 1991 to US$14.5 billion in 1996, Thailand switched to a surplus of US$800 million, in the last quarter of last year. That is despite the deterioration of Thailand's exports, which grew only 0.1% in 1996 from 25% the previous year. In the year to November, Thai exports grew 0.8% while imports shrank 30.4%.
In addition to increased duties, imports were hit by a sharp drop in gross fixed investment (which was estimated to have dropped 16% last year, after a 6% rise in 1996). Many exporters failed to obtain bank finance for their production.
Reflecting its dependent economy, Thailand's export industry relies on imports for key raw materials, parts and equipment. Yet export income is crucial to servicing its huge external debt, which was officially projected to increase from an estimated US$95 billion last year (59% of GDP) to US$102.5 billion this year (76% of GDP).
Of those borrowings, the private sector share is expected to stay at US$67 billion, but state debt is expected to increase from 1997's US$27.8 billion to US$35.4 billion, thanks to the costs of rescuing the rich.
Thailand's huge external borrowings — caused by lower interest rates in the imperialist centres and imperialist banks' desperation to lend — were a key factor in Thailand's currency crisis. The IMF is now trying to "'fix" Thailand's problem by increasing its borrowing and dependency on the imperialist economies.