THAILAND, ENERGIZED BY FINANCIAL CRISIS, PUSHES

UNCLAS SECTION 01 OF 02 BANGKOK 003336

STATE FOR EAP/MLS AND EB
STATE PASS TO USTR
TREASURY FOR OASIA
COMMERCE FOR EAP/MAC/OKSA
SINGAPORE FOR FINATT BAKER

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: EFIN ECON EINV ETRD TH
SUBJECT: THAILAND, ENERGIZED BY FINANCIAL CRISIS, PUSHES
MULTILATERAL CURRENCY POOL

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Sensitive But Unclassified. For Official Use Only.

REFS: A) Beijing 4121 B) Bangkok 2885
C) Bangkok 3144 D) Singapore 947


1. (SBU) Summary: A senior Ministry of Finance official explained
November 4 that the Thai government hopes to build consensus among
the ASEAN plus three nations, in time for the December ASEAN Summit,
on the creation of a multilateral currency pool based on the
bilateral swap agreements of the Chiang Mai Initiative. The
initiative is the brain child of Deputy Prime Minister Olarn
Chaipravat and would establish a $150 billion multilateral currency
pool, along with a $200 billion debt pool geared toward project
financing. The RTG recognizes its proposal is ambitious, but has
been energized by the potential impact of the global financial
crisis on Asia. End Summary.


2. (SBU) Comment: While clearly energized by the current financial
crisis, the RTG's push for an Asian emergency fund is undoubtedly
influenced by the view still held by many Thai that Thailand was
treated badly by the IMF (and USG) response to the 1997 crisis.
Given the little consensus among ASEAN plus three governments on how
to develop the framework for a multilateral currency pool (ref a),
much less a $200 billion bond pool, we believe the RTG's hope to
roll-out an agreed-to lending mechanism at the December ASEAN Summit
is unrealistic. More likely would be a joint statement at the
Summit on the need to work to develop a multilateral mechanism in

2009. Should the idea take off, our goal should be to ensure that
whatever mechanisms are agreed to are truly complementary to those
already in place within the international financial institutions,
are appropriately transparent to market participants, and not
redundant or counterproductive in nature. End Comment.


3. (SBU) Dr. Kanit Sangsubhan, Director of the Thai Ministry of
Finance's Fiscal Policy Research Institute (an in-house think-tank),
explained to Econoff November 4 that the RTG views the creation of a
multilateral fund between the ASEAN plus three nations (the ten
ASEAN member nations plus China, Japan, and South Korea) as an
important self-help initiative. Econoff visited Kanit, who also
serves as a key informal advisor to Deputy Prime Minister Olarn
Chaipravat, in his temporary office at Don Muang airport, to discuss
the RTG's response to the global financial crisis. (Note: Since
protestors occupy the Government House, the Prime Minister's office
has temporarily relocated to the old VIP lounge.) Kanit confirmed
that the crisis has had little direct impact on Thailand and its
relatively insulated banking sector, but that drop-offs in the
export and tourism sector are of concern (ref b). Kanit also stated
that liquidity within Thailand is of growing concern since Thai
firms are having difficulty finding affordable financing abroad,
thereby increasing the demand for affordable financing at home from
increasingly cautious banks. As such, the Thai government developed
a six point plan designed to increase liquidity, stimulate the
economy (especially exports and tourism),and shore up capital
markets (ref c).


4. (SBU) Kanit also detailed the Thai government's thinking behind
another key component of its financial crisis response plan:
boosting cooperation within ASEAN and among other Asian economies
through the development of a multilateral currency pool as an
outgrowth of the Chiang Mai Initiative or CMI. (Note: CMI began in
2000 and established bilateral currency swap arrangements between
the ASEAN plus three nations. See ref d.). He described how the
global financial crisis has energized the RTG in its efforts to
multilateralize the initiative. As Kanit candidly put it, Thailand
believes it and its neighbors desire to have mechanisms in place
close to home to protect their economic well-being, including from
contagion effects from abroad. He stated that, during the 1997
Asian financial crisis, the IMF's policies did more harm than good
and that friends like the United States could not be counted on for
assistance. The IMF's loan conditionalities at the time incorrectly
focused on Thailand's current account when they focus should have
focused on helping Thailand's capital account, he explained. From
the RTG's point of view, a new multilateral fund would serve this
purpose, complementing the IMF's role: allowing potential borrowers
to access emergency funds in non-dollar denominations (thereby
making repayment potentially easier) and doing so without resorting
to IMF assistance and the conditionalities that come with it.


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5. (SBU) Kanit stated the RTG is working with the other governments
in question to finalize an agreement on a multilateralized currency
pool, in some form, in time for the Thai-hosted ASEAN Summit in
December. Admitting this time-frame to be ambitious, he explained
the $85 billion already committed by regional governments under
bilateral arrangements could serve as the foundation of a
multilateral fund. While acknowledging key elements still need to
be agreed on (i.e., trigger mechanisms, supervision structures,
etc.) (ref a),the RTG believes the moment is right to do so.


6. (SBU) As reported in the Thai press October 23 and confirmed by
Kanit, the RTG's proposal to the ASEAN plus three nations goes
further than that already committed to already. The RTG wants to
extend the overall size of a multilateral currency pool to $150
billion with plus three countries (Japan, China, and South Korea)
contributing 80 percent of the total and the ten ASEAN members
contributing 20 percent (with different rates of contribution
depending on the size of their official reserves). The RTG appears
prepared, though, to agree to an initial fund size of approximately
$85 billion (it also remains in favor of the provision that fund
members can only draw 20 percent of available funds without an IMF
program). In addition to the multilateral pool, the RTG is
proposing the development of a $200 billion bond pool to act as a
shared source of funding to finance large-scale development
projects. When asked whether such a bond pool would be redundant of
the role of the Asian Development Bank (ADB),Kanit stated it would
complement the ADB's role since the fund would focus only on making
certain, specific projects "bankable," and not on those projects the
ADB finances with goals like poverty alleviation in mind. (Note:
Another Finance Ministry official with whom we spoke admitted the
RTG has yet to develop key details on the bond pool proposal, e.g.,
whether the bonds would be long or short term, backed up by assets,
etc. Therefore, the official is doubtful other nations are ready to
go for the idea. End Note).