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S&P

Political uncertainty affecting Thailand's credit rating: S&P

Seetalavajit Sabayjai

The Nation

BANGKOK: -- Political uncertainty and external factors continue to pose the highest risk to Thailand's credit rating, according to global rating agency Standard & Poor's.

"One thing that is specific for Thailand, if not for political uncertainty Thailand's rating may be higher because the other ratios are quite strong. It is very hard to predict," said Tan Kim Eng, senior director and analytical manager for sovereign ratings in Asia-Pacific.

He expressed high concern over Thailand's political stability.

S&P assigns BBB+ for Thailand's long-term foreign currency rating with a stable outlook for the next two years. Its framework for sovereign foreign currency ratings consists of political, economic, external, fiscal and monetary scores.

Thailand's strength extends from a solid external position, relatively well-developed financial markets and low net general government debt.

"At the BBB+ level, it [net general government debt] is not high. It is essentially lower than most of the other sovereign BBB+ category," Tan said.

However, the prolonged political uncertainties in the past two years have prevented Thai governments from pursuing necessary infrastructure investment for Thailand's long-term growth.

Last year's devastating floods have made Thailand less attractive in the eyes of foreign investors that fear that another round of floods. The months-long floods took a heavy toll on Thailand's industrial heartland north of Bangkok, with many factories forced to close temporarily.

To restore foreign investor confidence in Thailand, the government may need to assure them that the floods will not happen again. Despite its hard efforts through its Bt300-plus billion package for the restoration of infrastructure and improvement of water management, due to political uncertainty, it may not be implementing parts of the infrastructure projects.

Another concern lies in the government's policies promised during last year's election - such as the rice-pledging scheme and daily minimum wage increases to Bt300 in three years - which have constrained the government's budget and could hammer Thai businesses particularly smaller ones. That may prompt the government's relief measures for them in the next few years.

"Even given infrastructure spending pressure, the government is now undertaking other measures supporting rice prices and possibly helping small and medium enterprises in the future. All these will be negative for the ratings because you may increase deficits, you may increase debts over the medium term. That would erode one of |the strengths, Thailand's credit strength," Tan said.

Over the next three years, everybody is expecting the economic environment, at least outside Thailand, to be weak and businesses in Thailand will suffer high pressure. Embattled Europe and the fragile United States continue to be highly important to Thai exports.

"The one that affects everyone is what's happening in Europe," he said.

The situation in Europe may deteriorate much more than most expect now as its economic structure is more rigid, less flexible and many of the European-country economies are fiscally constrained.

If that happens, the US will be caught in the spiral and, then, Asia will be affected, he said.

"East Asia is still export oriented," he said.

Thailand has witnessed government changes in the past few years due to coups and people judgement. Such developments are not easily predictable and cause high political uncertainty.

Obviously, the Thai government was seen to be highly worried about them and that would take some attention away from long-term projects like infrastructure building and education reform.

"This is another thing we watch for in the political environment," he added.

-- The Nation 2012-03-12

[BigJohnnyBKK]

The ongoing red-vs-yellow (Thaksin vs "the" opposition) conflict is probably the #1 factor hurting the country's viability as a destination for long-term foreign investment, "private infrastructure development" if you like. Much more significant than "terrorism" activities, ongoing problems in the South.

Corruption and impunity are pretty much taken for granted as permanent conditions - I don't see anyone expecting much to change in favor of proper rule of law, governance, transparency etc, that's not even on the radar screen no matter which "party" is nominally in power, the same "elite" (read: mafia) networks will still be in control just as they are in most of the world.

All this nonsense demonizing him as a Pol Pot/Hitler character, wanting to "overthrow" the monarchy etc is just that IMO, sheer propaganda. At this point "reconciliation" would mean the yellows just accepting Thaksin's return, whatever that takes, and letting business get back to normal. Under the table, I would think he'd agree to sharing a bit more of the spoils with the opposing mafia networks this time (his fatal mistake and fundamental cause of the coup IMO). And by not having all the extra overhead/friction of having to run the country by remote control via his cute but hapless sister, the government might actually become more effective at its ostensible (and admittedly lesser) public service role.

Any other paths forward will IMO hurt the overall short- and medium-term interests of the country as a whole, both from a macro big-business POV and that of the common people - not that anyone with real power cares about the latter of course.

In even a pseudo-democracy, the people get the leadership they deserve.