VZCZCXRO5509
PP RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHBK #3336/01 3121025
ZNR UUUUU ZZH
P 071025Z NOV 08
FM AMEMBASSY BANGKOK
TO RUEHC/SECSTATE WASHDC PRIORITY 4974
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
INFO RUEHCHI/AMCONSUL CHIANG MAI PRIORITY 5820
RUCNASE/ASEAN MEMBER COLLECTIVE PRIORITY
RUEHBJ/AMEMBASSY BEIJING 6489
RUEHKO/AMEMBASSY TOKYO 1166
RUEHUL/AMEMBASSY SEOUL 5035

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 
 
BANGKOK 00003336  001.2 OF 002 
 
 
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. 
 
 
BANGKOK 00003336  002.2 OF 002 
 
 
¶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).