Bangkok--20 Apr--Moody's
Moody's Investors Service says that Thailand's credit fundamentals could experience negative consequences if the country's political unrest continues and if its opposing camps fail to reach an agreement to co-exist.
"While the immediate risk that Thailand's Baa1 credit strengths would be rapidly undermined remains low, recent events in the country signal a marked downturn in its economic prospects at a time when the government is trying to cope with the adverse effects of the global recession," says Thomas Byrne, a Senior Vice President with Moody's Sovereign Risk Group.
"If the country's opposing political camps prove incapable of reaching an accommodation, and if Thailand's institutions are incapable of defusing an increasingly destructive political dynamic, then the current political situation could over time have potentially negative consequences on Thailand's credit fundamentals," says Byrne.
Byrne was speaking in conjunction with a Moody's update -- which he authored -- on the implications for Thailand's economy and credit ratings of the protests this month against the government of Prime Minister Abhisit Vejjajiva by the supporters of deposed Prime Minister Thaksin Shinawatra.
"And although the army has regained control of Bangkok, last Friday's assassination attempt on one of the leaders of the royalist and anti-Thaksin Peoples' Alliance for Democracy underscores the fluidity and dangers of the political situation in Thailand," says Byrne.
"For now, Thailand has solid external metrics that support its Baa1 government ratings; official foreign exchange reserves have risen to a high level, the Thai baht has barely moved despite the instability, the current account is expected to stay in surplus, and the dependence of government financing on foreign funding has been sharply reduced," says Byrne.
"However, the combined effects of political turmoil and the global recession will weigh more heavily on economic prospects in 2009 and next year," says Byrne.
After taking into account the latest political shock -- coupled with the collapse in global trade -- Moody's has lowered Thailand's 2009 real economic growth forecast to a contraction of 4% from 3% previously.
"The longer the cycle of political tension and turmoil persists, the greater the adverse effects on the economy, and the government's efforts to put in place economic stimulus measures will be side-railed by the need to ensure political stability," says Byrne.
"And while Thailand's credit fundamentals would likely withstand the shock of the global recession and the jitteriness of foreign investors, a collapse in confidence among Thais themselves in their country's future would inevitably lead to a deterioration in Thailand's credit fundamentals," says Byrne.
Thailand's Baa1 outlook was changed to negative from stable on December 4, 2008 due to concerns that the country's protracted political discord could eventually be destabilizing.
The principal methodology used in rating the government of Thailand is Moody's Sovereign Bond Methodology, which can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Credit Policy & Methodologies directory on Moody's website.
The report is entitled Thailand's April Turmoil Adds to Economic Challenges and Rating Pressures. It can be found at www.moodys.com .