This week’s visit by Thailand’s finance minister, following his government’s decision to unfetter its baht from a dollar-dominated basket of currencies, could prove to be a test of Japan’s commitment to securing stability in Asian financial markets.
Thanong Bidaya is to arrive July 17 for discussions with government officials and members of the private business and banking sectors over Bangkok’s surprise managed float of the battered baht earlier this month. It is widely expected that Japan will offer some form of assistance to Thailand to help retain stability in its currency markets and keep the adverse effects of the baht float from further spilling over into other Southeast Asian economies.
Financial officials in other Southeast Asian nations such as Malaysia and Indonesia are bracing for speculative attacks on their currencies. So far, Japanese authorities have laid low, with Finance Ministry officials saying that a formal call should first come from the Thai side while scurrying to gather information on the situation.
“First, we need to hear them out, to see how they evaluate the present situation and whether the Thai government itself feels it needs (such assistance),” an international financial source in Tokyo said. He was echoed by Naotaka Saeki, chairman of the Japan Federation of Bankers Associations, who said that there has yet been no request from Thai authorities for assistance. “The (Thai) finance minister is to meet with officials from the (21) Japanese banks that have operations in Thailand on July 17 to explain to us the situation there,” Saeki told a news conference, adding that he does not expect a straight request for aid.
In April 1996, Japan signed dollar-loan repurchasing agreements with seven Asia-Pacific nations, including Thailand, with the intention of precluding a currency crisis similar to that which rocked the Mexican peso in late 1994. Under the pacts, these countries agreed to extend up to $1 billion in loans to a nation experiencing wild currency fluctuations by using that country’s U.S. Treasury securities holdings as collateral.
During the peso crisis, in which Mexico found its currency in free fall after devaluation triggered a retraction of funds from several foreign investors, the United States played a key role in containing the disaster. Many observers believe that Japan, which has often presented itself as the guardian of the Asian region, will now be called on to restore calm to markets in this corner of the globe.
Some analysts in Tokyo said that while the confusion stemming from the baht’s float might not have a negative effect on all Japanese banks and corporations with ties to Thailand, the fact remains that ties are close. According to World Bank figures, Thailand had total external debt of $56.79 billion as of 1995, of which $38.48 billion was long-term. A total 48.1 percent of its long-term debt was in yen, compared to 26.6 percent in dollars.
“Given the fact that Japanese banks have been lending considerably to Thailand, and because this region is Japan’s back yard, it seems inevitable for Tokyo to play a pivotal role in any assistance scheme,” one analyst said. But details of possible rescue packages still remain sketchy, while media reports from Thailand quoted a Thai official as saying $10 billion in new loans from overseas would be needed within the next six months.
Officials at the Finance Ministry in Tokyo, however, said they did not know the basis on which such a figure would be calculated.