9. Table 4 shows some key macroeconomic targets for 1998 from the various
Letters of Intent that the Thai government signed with the IMF. In the first Letter of Intent in
August 1997, the IMF was still expecting for 1998 a positive real GDP growth of 3.5%, a
current account deficit of US$ 5.3 billion and a capital account surplus of US$ 1.8 billion.
These numbers turned out to be the complete opposite to the actual figures for 1998, as
shown in the last row of table 4. Making wrong forecasts is normal in the economics
profession, and at the start of the Thai crisis just about every institution made wrong
forecasts. However, the IMF had a better knowledge of the true situation in the country than
almost everyone else, in particular it knew the true situation concerning the almost complete
depletion in net foreign reserves. If one takes the targets in the First Letter of Intent at face
value, it would appear that the IMF had too much faith in the market confidence in its
program. The expected current account deficit of US$ 5.3 billion meant that it did not expect
the severe depreciation of the Baht that ensued. Similarly, the expected surplus in the capital
account meant that it seriously overestimated the rollover of the country’s short-term external
debt. Both these expectations are surprising, since part of the IMF package called for the
Bank of Thailand to begin to reveal key economic information on a regular basis, including
foreign reserves. Once the market began to figure out that net foreign reserves were almost
depleted, the US$ 17.2 billion package from the IMF could not have generated that much
confidence, particularly since the amount was to be drawn over a period of 34 months and
Thailand still had about US$ 35 billion in short-term external debt. The quicker one could
convert Baht to foreign currency the safer one would be, and also stand to gain as the Baht is
clearly expected to depreciate further and further. The fact that the IMF expected a current
account deficit to continue only made the situation worse, since it is hard to image how an
excess supply for foreign currency could arise. Only when the current account turned into
sizeable surplus would the supply of foreign currencies begin to exceed demand and the Baht
strengthen.