BANGKOK Thailand AP The Thai government and the International Monetary Fund have agreed on a forecast of 1 percent economic growth for Thailand next year after this year's 7 percent contraction in gross domestic product a Cabinet minister said Tuesday. The projection came as the Cabinet approved a letter of intent outlining economic and policy targets legislative reforms public works and social development programs to which it will commit itself in the upcoming sixth quarter of a dlrs 17.2 billion IMF rescue package. The return to growth will come slowly as a contraction of 3.3 percent has been forecast for the first quarter of 1999 followed by mild 0.2 percent growth in the second quarter. Pitak Intrawityanunt a minister of the Prime Minister's Office said the letter of intent will allow for a public sector deficit equivalent to 5 percent of gross domestic product to stimulate stagnant domestic demand. It also calls for speedy progress in recapitalizing the banking sector and passage of a rack of economic reform legislation currently stuck in Parliament. Pitak said the government budget deficit currently accounts for 3 percent of GDP and the state enterprise investment budget totals 2 percent. The IMF had earlier insisted on more stringent restraints on public spending which critics said were hindering economic recovery. The Thai government has made five out of a scheduled 12 withdrawals from the IMF package totaling dlrs 11.95 billion. Once the IMF board in Washington approves the draft letter of intent Thailand will be eligible to draw another dlrs 480 million in the sixth quarter of the IMF program. Prime Minister Chuan Leekpai told reporters at a press conference after the Cabinet meeting the country will see renewed economic growth by the second half of 1999. The new letter of intent will respond with a sharper focus on rural development and steps towards decentralization of budgetary powers an Asian Development Bank official told Dow Jones Newswires. ADB and World Bank programs funded through the IMF credit line possibly to be supplemented by additional funds from Japan are to pump hundreds of millions of dollars over the next few years into rural infrastructure worker training and agricultural research and assistance programs. Thailand plans to spend 1 percent of its GDP on social safety net and related labor-intensive investment projects according to the letter of intent signed by Finance Minister Tarrin Nimmanhaeminda and addressed to IMF Managing Director Michel Camdessus. ``As far as possible these projects will be foreign financed'' the letter said. The recapitalization and restructuring of a financial sector buried in more than 2 trillion baht dlrs 55 billion worth of non-performing loans remains a centerpiece of the IMF program. ``By the end of January next year the central bank will complete the next round of negotiations with all banks and finance companies to ensure that they remain fully capitalized during the six month period through June'' the letter said. Bank of Thailand Governor Chatu Mongol Sonakul told the press conference he expects to be able to reach agreement with all financial institutions by the deadline. Analysts are concerned that financially-weak medium-sized commercial banks are being given too much time to raise funds delaying the renewed credit extension that is needed along with domestic consumption to revive production. APW19981201.1029.txt.body.html APW19981201.0775.txt.body.html