That may also explain a statement to the press in early June by Tarrin's deputy, Pisit Leeahtham, that nonperforming loans in the financial system could fall to as low as 7.4% by year-end.

That's also pushing it, considering that NPLs accounted for 36.5%, or 1.95 trillion baht ($50 billion), of all outstanding loans in April, according to the Bank of Thailand. Although that's down from a 49% high in mid-1999, it's still a millstone around the financial system's neck, choking new bank loans to a trickle and discouraging foreign investment.

The squeeze keeps most companies, particularly small and medium-sized ones, starved of the funds they need to get back on a sound footing. And with Thai stocks down 37% in value so far this year, businessmen have nowhere to turn to raise capital.

Yet the level of NPLs is gradually falling. Merrill Lynch forecasts a level of 28% of total loans by year-end, while SG Securities banking analyst Andrew Stotz predicts 10%-20%. Stotz says he sees some value in the government presenting a positive view on NPLs.

"Thailand is faced with a major dilemma and these loans won't go down quickly, so a priority is trying to show some headline progress," he says. This is not only to assure foreign investors but also to pressure holders of so-called strategic NPLs--companies with the means to repay their loans that haven't--to cough up.

Another headache for the government is its huge public-debt burden. In a May report, the Finance Ministry put total government debt at 2.7 trillion baht. "The budget for debt service alone will increase from 9.5% of the total budget in 2000 to 13.3% to 17.1% in 2003," it warned.

One area seemingly unaffected by debt problems and the credit squeeze is exports, the main force driving recovery. From January to April, exports totalled 539.5 billion baht, up 34% from the same period in 1999. Electronics (particularly integrated circuits), textiles and canned seafood were the front runners. Vehicle exports also were strong. Imports, mainly raw materials and intermediate goods, were up by about the same percentage during the period, but Thailand nevertheless had a trade surplus of 2.5 billion baht.

This, together with the weakening of the baht against the U.S. dollar--it now trades at around 39, down in value from 38 in January--has led Merrill Lynch to forecast a current-account surplus for 2000 of $9.6 billion, or 7.3% of GDP. The brokerage also agrees with many other analysts in predicting GDP growth this year of 4.5%, compared with 4.2% in 1999.

Yet most analysts also agree that Thailand's debt problem remains worrying. One way to help resolve the debt issue would be for the government to push ahead with its privatization programme. In an April report, Merrill Lynch said "it is likely that the public will be confronted with a choice between privatization or the possibility that the public-debt burden causes a serious slowdown of the economy within the next two to three years."

But it added that action on privatization would likely have to wait until after the next election, which must be called by November.

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