SUNS  4357 Thursday 21 January 1999

Bangkok, Jan 20 (IPS/Boonthan Sakanond) -- It was 'deja vu' for Thai policy-makers when halfway across the globe last week, a beleaguered Brazilian government first struggled to protect and finally floated its currency, a move that threatened to spark off yet another round of international stability.

In June 1997, the Thai government did exactly the same when thing it floated and effectively devalued the Thai baht -- and became the first domino to fall in the Asian economic crisis that continues to this day.

Following its flotation, the baht plunged to about half its value against the U.S. dollar, sparking off currency devaluations across the region and marking the beginning of the most severe depression since the Pacific War.

For the Thais, the Brazilian crisis corroborates their claim that the
Thai economy's problems are part of larger structural flaws in the
global financial system.

But beyond this purely theoretical point, Thailand can take little comfort from Brazil's latest woes.
Analysts warn that a collapse of the Brazilian real could dampen investor sentiments in all emerging markets, slow down the U.S. economy and seriously affect Thailand's painstaking attempts at recovery.

There are contrasts and similarities between Brazil up to the time of its devaluation, and Thailand and other Asian countries. A currency seen as overvalued and heavy short-term debt helped trigger crises in South Korea, Indonesia, Thailand, Russia and now Brazil.

But while most of Brazil's woes are associated with excessive public spending and a public sector deficit, the Thai crisis was primarily due to excessive consumption and private sector debts.

"Industrialised nations, as well as the IMF, will have to move quickly to contain the global impact," said a worried Tarrin Nimmanahaeminda, Thailand's finance minister.

Tarrin's invocation of the IMF's name has an ironic ring to it because he is known in Thailand as the international agency's 'best pupil' and for many Thais, Brazil represents yet another failure of the IMF's policy prescriptions.

"The Brazilian debacle, despite the massive IMF support of $41 billion, puts the spotlight even more on Thailand and its economic performance based on the strict IMF medicine," the Bangkok-based English language daily 'The Nation' said in an editorial.

The IMF package for Brazil, conceived in September 1998 in the wake of the Russian ruble's collapse, was a pre-emptive move meant to protect the Real from the global crisis.

But critics now say this strategy by the U.S. and IMF have failed. Others go as far as saying this policy of defending fixed or semi-fixed exchange rate regimes is a "mistake" in Asia, Russia and now Brazil.

The IMF package, according to The Nation, had given "investors time to flee but not solved the underlying problems of the Brazilian economy".

Since the Thai policy is guided by the IMF, said the editorial, it is time to question the Fund's core purposes of protecting the interest of foreign creditors and further liberalising client economies to
eventually attract foreign capital back.

The Brazilian debacle threatens Thailand in direct ways. First, many analysts expect the real's devaluation to affect the Thai baht too, which has appreciated considerably in the past year from around 45 to 36 baht to the U.S. dollar.

Secondly, the negative sentiment towards emerging economies will force a delay in Thai government plans to raise funds overseas through new sovereign bonds.

Thai and other Asian exports to the U.S. are also likely to be affected if Brazil's crisis slows down the American economy. Brazil is a direct competitor to Thailand in global export markets for many agricultural commodities, and the fall in the real's value is expected to give it an edge over the Thais.

Also, Brazil itself is a big market for Thai products and accounts for half of all Thai exports to Latin America, so any economic problems there will be reflected in falling sales for Thai exporters.

But what has really worried Thailand is that the Brazilian debacle may also force the devaluation of the Chinese currency yuan, which has held steady all these months despite the global turmoil.

Many analysts trace the slowing down of exports from Thailand and other South-east Asian economies prior to the crisis to a 1994 devaluation of the yuan, which made Chinese goods vastly cheaper to its rivals in the world market.

"A collapse of the yuan will spark off another round of devaluations all over the region, ruin the Chinese banking system and slow down its economy considerably," says an economist at Bangkok's Chulalongkorn University.

That scenario, many believe, will be the final blow to any chances of the regions' recovery from recession.

One of the long-term implications of the Brazilian crisis could be of course to force South-east Asian policymakers to rethink the merits of slavishly following the neo-liberal economic model of  development they have followed all these years.

When the Asian crisis began in mid-1997, advocates of neo-liberal economic policy, who prescribe fully open markets and export-oriented economies, pointed to Latin America as an example of relative calm and stability because they claimed "it had gone through such turmoil before and undergone all the structural adjustment necessary".

But Brazil proves this has obviously not been the case. Indeed, many say what may require structural changes are the basic assumptions that make up much of the ideological steam and hot air that accompanies the globalisation of the world economy.