Thailand - Finance Companies Restructuring Loan, Economic and Financial Adjustment Loan, and, Second Economic and Financial Adjustment Loan Projects

Upon reviewing the three loans, the audit mostly downgrades the Implementation Completion Report (ICR) ratings, though it concurs with a likely sustainability on the three loans. Project outcomes are downgraded to moderately unsatisfactory from a satisfactory rating on the three loans, and, on the institutional development impact rating, it downgrades to modest the Finance Companies Restructuring Loan; from substantial to modest that of the Economic and Financial Adjustment Loan; yet, concurs on a substantial institutional development impacts for the Second Economic and Financial Adjustment Loan. Finally, mixed reviews are also shown on the Bank and Borrower performances. The main findings from the review of these loans suggest: given that the significant cost of cleansing financial crises can offset progress made over the years in poverty alleviation, and other social improvements, the Bank should continue to play a role in both improving financial sector governance, and soundness to reduce the probability of crisis, as well as in post-crisis management and well-structured recovery. Early underestimates of the severity of the crisis, and the impact of the closure of the finance companies (FCs) on the economy, raised concerns about the credibility of the international financial institutions' approach, and, most important to Thailand's future, about the financial reform itself. This suggests that crises in other countries need to be approached more comprehensively, taking into account potential negative impacts of large scale closures. The audit stipulates short-term crisis management policies can compromise essential structural reforms. The failure to factor in the design of the reforms the inadequacies of the Thai legal, and regulatory infrastructure led to approaches that may have increased the cost of cleanup. Further lessons highlight that sequencing and timing of reforms are crucial; and recommend that succeeding loans with increasingly broader goals, and a growing list of conditions, diffused the focus of reform and meaningful monitoring. A better approach might have been a well-designed programmatic loan, as now being used (but not available at that time), which seeks to develop a set of priority reforms, and sequences the steps for supporting those reforms through successive loans.