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Executive Summary #1164es on Asia

March 12, 1998

BG1164es: The United States and Thailand: Helping a Friend in Need

By and

Thailand seeks support from the United States as it tries to recover from a serious economic crisis. The March 12, 1998, visit of Thailand's Prime Minister, Chuan Leekpai, offers the United States the opportunity to affirm its support for an important U.S. ally. In addition to their long-standing military alliance, Thailand and the United States share a concern about China's intentions in Southeast Asia and cooperate in fighting drugs. To affirm the U.S. alliance with Thailand, the Clinton Administration should:

  • Tell Prime Minister Chuan that the United States remains committed to its alliance with Thailand. Senator William Roth (R-DE) has offered a congressional resolution of support for Thailand.

  • Continue military exercises with Thailand. These exercises will become more valuable as the economic crisis forces cutbacks in Thailand's military spending.

  • Ask Thailand to reconsider allowing U.S. supply ships to use Thai ports. A previous request was denied in 1994. The United States should request that Thailand reconsider its decision; these supplies need to be close to U.S. servicemen in Korea and the Persian Gulf in the event hostilities flare up in either region.

  • Offer modest assistance to help Thailand fight drugs. Budget cuts are reducing Thailand's ability to destroy drug crops; the United States should offer a one-time assistance package to help destroy drugs that might end up on the streets of the United States.

ECONOMIC ADVICE

Thailand now needs help from the United States to recover from its devastating economic crisis and to prevent future crises. The crisis began in early 1997 when the value of Thailand's currency, the baht, fell in international markets. The fall of the baht exposed serious flaws in Thailand's financial sector, its corporate laws, and in its statistical reporting. After seeing economic growth rates over 8 percent most of this decade, Thailand's economy may contract by 3 percent in 1998. The crisis has seen a 50-percent fall in the value of the baht and a collapse of Thailand's financial sector. Thailand has turned to the International Monetary Fund, which in August 1997 extended $17.2 billion in credits. Thais are angry that the United States did not contribute special credits to this package. But the United States can offer something more valuable: sound advice to prevent future crises.

The first step is to restore confidence in Thailand's financial sector. Banks need to resume normal business before the economy can begin to recover. To strengthen Thailand's financial sector, the Clinton Administration can urge Thailand to:

  • Create an international creditors committee to restructure bank debts. Such a committee can help to extend the terms of repayment or can help to excuse some debts.

  • Sell bad assets from failed and troubled banks. Thailand created a government agency, the Asset Management Corporation, to acquire and liquidate bad assets (those not generating revenue). The United States could offer this agency much practical advice from its experience with Resolution Trust Corporation, which helped failed U.S. savings and loan institutions sell their assets.

  • Create a currency board regime. A currency board regime would fix the value of the baht to the U.S. dollar and allow the interaction of U.S. Federal Reserve policy and market forces to determine the domestic money supply, and therefore the inflation rate, in Thailand.

A currency board, however, can succeed only in conjunction with other economic reforms that build greater transparency and accountability in Thailand's economy. The Clinton Administration can help Thailand to do so by urging that it:

  • Strengthen the prudential supervision of financial services firms. This would include rules to prevent reckless investments by managers that put their companies at risk.

  • Adopt international standard accounting rules. Financial disclosure requirements similar to those followed in the United States are needed to provide investors with truthful information.

  • Increase corporate accountability. Thailand should adopt rules to allow outsiders to change the leadership of poorly run corporations. Such rules will make directors and managers more accountable to shareholders.

AN ENDURING ALLIANCE

Since World War II, the United States and Thailand have developed a strong strategic and economic partnership, building on a friendship that dates back to 1833. The United States benefited from access to bases in Thailand during the Vietnam conflict and during the Persian Gulf War. With Thailand facing significant military cutbacks, this alliance currently is more valuable to Thailand. The United States can help Thailand by finding an alternate buyer for expensive fighter aircraft that Thailand recently purchased but now cannot afford. The United States also should ask Thailand to allow it to preposition military supply ships in Thai ports. These supplies can help deter conflict in Korea and the Persian Gulf--which also benefits Thai security interests.

As an ally, the United States has the obligation to help Thailand recover from this crisis. The best assistance the United States can offer is advice on how to strengthen confidence in Thailand's financial sector and how to prevent similar crises in the future. Thailand deserves serious attention from U.S. policymakers, and Prime Minister Chuan Leekpai's visit to Washington, D.C., offers the opportunity to affirm support for this long-time ally of the United States.

Richard D. Fisher, Jr., former is Senior Policy Analyst in the Asian Studies Center at The Heritage Foundation.

Robert P. O'Quinn is a former Policy Analyst in the Asian Studies Center at The Heritage Foundation.

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