The managing director of the International Monetary Fund, Michel Camdessus, has said that the Thai government's commitment to an IMF rescue plan is the key to economic recovery.

Mr Camdessus announced a $17.2 bn rescue deal for Thailand during the third leg of his tour of five South-East Asian countries affected by the recent economic turmoil in the region.

The country's collapsing economy will see renewed growth in the second half of next year, after restructuring financial and industrial sectors, if the new administration sticks to the program, said Mr Camdessus after meeting new Thai Premier Chuan Leekpai.

Gross domestic product growth, which has fallen to near zero from over 8% in the decade to 1995, should eventually recover to around 6% to 7%, he said.

Tarrin Nimmanhaeminda, expected to be confirmed as finance minister in the new government, said the government and the IMF agreed in the meeting on the need to speed up implementation of the recovery plan.

The IMF and the government were working on new measures whereby companies whose rehabilitation plans are rejected by the Finance Restructuring Agency might be helped to stay afloat, Mr Tarrin said.

Supachai Panitchpakdi, expected to be confirmed as deputy premier and commerce minister, said the IMF-backed current account deficit target of 3 to 3.5% of GDP - down from above 8% in recent years - will help restore confidence.

While inflation remained a concern, it was still showing signs of being under control, he said. He also expected the Thai economy to continue its slowdown until the middle of 1998.

In contrast to Thailand, Mr Camdessus ruled out IMF-backing for Malaysia. He said the Malaysian government had done the right things in last month's budget.

In neighbouring Indonesia, the IMF will supply a $23bn aid package to stabilise its economy - one of the largest in the IMF's history.

However, he also suggested that Malaysia's trade deficit was still too high, and that bank lending was growing too rapidly.

Some observers doubt whether the Malaysian government will follow the IMF's recommendations. The prime minister, Dr Mahathir Mohamad, is well known for his antagonism to the orthodox economics of the market place.

Currency crisis a 'blessing in disguise'

On Wednesday, Mr Camdessus had described the recent currency crisis in South East Asia as a "blessing in disguise". He urged the region's leaders to take it as an encouragement to do more to prepare their economies for the 21st century.

Mr Camdessus is trying to restore investors' confidence in the region's markets, while trying to remind the region's leaders of economic realities.

When visiting neighbouring Indonesia on Wednesday, he had praised the country's move towards economic reform but warned the government that it must adopt further reforms to restore confidence in its currency, the rupiah.

"We shouldn't believe that once we stabilise the rupiah everything is over," he said, "The most important things remain to be done if you want your economy to be in a good shape for the next century."

Tigers in trouble

Indonesia and Malaysia are two of several countries in Southeast Asia that saw their economies nosedive in the wake of financial turmoil that swept through the region this summer.

Along with Thailand, South Korea and arguably the Philippines, both countries belong to the so-called "Asian tigers", famed for their spectacular growth rates throughout the last two decades.

Case study: Indonesia

Since 1970, Indonesia had seen its real gross domestic product grow by 7% a year on average. Its success was due to prudent economic policies, high investment and savings rates and a market-oriented trade regime.

But like many of the tigers, Indonesia's strong overall performance masked a number of underlying weaknesses that left Indonesia's economy vulnerable. Widespread accusations of government corruption upset investor confidence and its weak banking system was unprepared when foreign investors started to pull out and speculators attacked its currency.

As part of the aid package, Indonesia has promised to tighten monetary and fiscal policies, liberalise trade and revamp the financial sector, which includes closing 16 banks. The programme is designed to enable the country to emerge stronger with lasting growth.

But some economists have questioned the value of the reform programme, which they say consists mainly of vague promises to liberalise trade and little action on official corruption.

Mr Camdessus acknowledged that some weaknesses were not addressed by the IMF aid package, but he said he expected more specific liberalisation measures would emerge over the next few months.

After Thailand, Mr Camdessus will visit Malaysia, Singapore and the Philippines.

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