WHAT OTHERS SAY

Political impasse hurts Thailand's credit rating

Bruce Gale

The Straits Times

Asia News Network

Singapore

BANGKOK: -- Ask Thai government officials and they will fume that it is just unfair. How can Thailand be denied an "A" sovereign credit rating when other countries with poorer macro-economic numbers already have that coveted assessment?

Securing a high credit rating helps a country access cheap funding on international bond markets. And for the Thais, the obvious comparison is with Malaysia.

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All three major rating agencies - Standard & Poor's, Moody's and Fitch - give Malaysia an A grade. Those same agencies put Thailand at the upper end of the B category, meaning that while Thai bonds are still rated investment grade, they are not regarded as being of the same quality as Malaysia's.

The macro-economic numbers, however, suggest otherwise. Thailand's public debt stands at around 44 per cent of gross domestic product, significantly lower than Malaysia's 53.7 per cent. And while both countries have fiscal deficits, Malaysia's is proportionately higher (4.5 per cent of GDP last year) compared to that of Thailand (3 per cent). Both countries also hold international reserves equal to more than nine months of retained imports.

The reality, however, is that such numbers are not the only factors rating agencies look at when making their assessments. Also considered is the impact of more subjective political variables. While Malaysia certainly has its problems, the political impasse in Thailand seems far riskier.

Thailand's recent political history, involving military coups, constitutional change and deadly street clashes, cannot be ignored. Malaysia's political difficulties will be dealt with at the ballot box in a couple of months; Thailand's could easily be settled at the point of a gun.

Despite the comfortable parliamentary majority that Thai Prime Minister Yingluck Shinawatra's Pheu Thai Party secured in the 2011 elections, government economic planners are far more easily sidetracked by urgent, short-term political considerations than in most other countries. Frequent changes of government have not helped either.

Education reform, which could help promote the country's long-term economic prospects, is already being neglected.

Thailand remains bitterly divided between yellow- and red-shirt protesters, together with their respective allies. A loose grouping of middle-class professionals and royalists, yellow-shirt protesters supported the 2006 military coup that ousted Yingluck's brother, Thaksin Shinawatra.

The red shirts, on the other hand, hotly oppose what they see as attempts by the urban and military elite to monopolise political power. Sympathetic to Thaksin, they include students, left-wing activists, farmers and some businessmen.

Both groups were responsible for violent street protests in recent years. And as Yingluck well knows, a future round of violence could trigger yet another military coup.

In order to maintain strong support among rural voters, her government implemented several populist policies, some of which are contributing to the growing fiscal deficit. According to the World Bank, a controversial rice-buyback scheme alone was responsible for a Bt115 billion baht loss from the 2011-2012 bumper harvest.

The government says it is aiming for a balanced budget by 2017. The maximum level of public debt is officially estimated at 49.9 per cent of GDP. But critics give much higher debt projections.

"No one in this government is concerned with fiscal discipline," former finance minister Pridiyathorn Devakula told an economic forum in Bangkok last month.

There is certainly plenty on the political calendar to worry about this year. The International Court of Justice is due to rule later on Bangkok's acrimonious dispute with Cambodia over the ownership of the Preah Vihear temple. Should Thailand's claim be rejected, as seems entirely possible, Yingluck could face serious protests from citizens accusing her of not doing enough to defend Thailand's cultural heritage.

The rising cost of living and lower prices of agricultural produce are also causing concern. Street protests by farmers could, if left unaddressed, seriously undermine the government's support in rural areas. And this, in turn, could give the government's opponents outside Parliament the opportunity they are looking for.

But it is the government's push to amend the present Constitution, drafted by a military junta following the 2006 coup, that is potentially far more serious.

The government sees it as anti-democratic. Proposed changes include a return to a fully elected Senate, increased provisions for amnesty, and limits on the power of judicial and independent bodies to scrutinise elected politicians.

The yellow shirts are opposed to all of these changes. The government also seems to have little inclination for reconciliation. This can be seen in the crackdown on yellow-shirt protesters in November and murder charges brought against former prime minister Abhisit Vejjajiva in December.

It looks like that rating upgrade will just have to wait.

-- The Nation 2013-02-08

Corruption hurts Thailands credit rating!....

Not good news. I have been watching the pound fall against the baht this month. Nearly cut my Leo consumption because of it.

Seriously if the credit rating deteriorates or does not improve, while Thai bonds may still be regarded as investment grade it is possible the government will have to pay higher rates to borrow. As we have seen with the latest round of short term bond sales money has flooded in partly because of desparities in interest rates. Seems to me this affects us expats. If borrowing costs were lower there would be reduced inflows and therefore better exchange rates.

With all the borrowing due to rice pledging and other things how much more debt will need to be financed by bond sales.

I note Red91 is not for sale now so this must be a big tax loss which will need to be replaced.

Remember all the 1997/98 bank bailout debts. They just shifted them to another section of the country's balance sheet so to speak and now they are not regarded as debt as a proportion of GDP but those debts which are massive and are still outstanding still have to be serviced.

Seems to me an uplift in credit rating, reducing borrowing costs might just help all us expats who derive income from abroad. I exclude Australian friends from this as they are ok and have not suffered during the last 6 years financial calamities.

What do you think.

International agencies not buying into Thai internal bull crap that the Thais and Red falangs are spoon fed. Fair assessment and commentary of the corrupt thieves destroying Thailand.

Not good news. I have been watching the pound fall against the baht this month. Nearly cut my Leo consumption because of it.

Seriously if the credit rating deteriorates or does not improve, while Thai bonds may still be regarded as investment grade it is possible the government will have to pay higher rates to borrow. As we have seen with the latest round of short term bond sales money has flooded in partly because of desparities in interest rates. Seems to me this affects us expats. If borrowing costs were lower there would be reduced inflows and therefore better exchange rates.

With all the borrowing due to rice pledging and other things how much more debt will need to be financed by bond sales.

I note Red91 is not for sale now so this must be a big tax loss which will need to be replaced.

Remember all the 1997/98 bank bailout debts. They just shifted them to another section of the country's balance sheet so to speak and now they are not regarded as debt as a proportion of GDP but those debts which are massive and are still outstanding still have to be serviced.

Seems to me an uplift in credit rating, reducing borrowing costs might just help all us expats who derive income from abroad. I exclude Australian friends from this as they are ok and have not suffered during the last 6 years financial calamities.

What do you think.

I work in the ratings business. Essentially Thailand has A- economics, a BB+ bureaucracy and a B- political class. The current BBB+ is secure for now but could be under pressure should government spending (as seems all to likely) get out of control. Ditto political interference with the BoT and therefore monetary policy.

Soon we'll hear that despite the efforts of our real PM the opposition is seen as obstructing progress causing harm to Thailand. Pheu Thai party list MP and UDD leader Dr. weng to repeat his call for eradication of the Democrat party. Government to do all it can to get that A credit rating desired :-)

Well if Thaksin has his way we will be in deep do do.

On another thread he is advocating carrying on the rice schemes/scam for a few more years. That for sure is going to require massive borrowing. As has been noted earlier Thailand still has the dept from the 1997 debacle that need to be serviced.

I would be interested in laocowboy2 Take on that.

Edited February 8, 201313 yr by hellodolly

returns from the funds are remarkable

one paid over 80%

i would think that just concentrating on currency is putting your eggs in one basket

whereas you could have hedged with a well paying fund

Not good news. I have been watching the pound fall against the baht this month. Nearly cut my Leo consumption because of it.

Seriously if the credit rating deteriorates or does not improve, while Thai bonds may still be regarded as investment grade it is possible the government will have to pay higher rates to borrow. As we have seen with the latest round of short term bond sales money has flooded in partly because of desparities in interest rates. Seems to me this affects us expats. If borrowing costs were lower there would be reduced inflows and therefore better exchange rates.

With all the borrowing due to rice pledging and other things how much more debt will need to be financed by bond sales.

I note Red91 is not for sale now so this must be a big tax loss which will need to be replaced.

Remember all the 1997/98 bank bailout debts. They just shifted them to another section of the country's balance sheet so to speak and now they are not regarded as debt as a proportion of GDP but those debts which are massive and are still outstanding still have to be serviced.

Seems to me an uplift in credit rating, reducing borrowing costs might just help all us expats who derive income from abroad. I exclude Australian friends from this as they are ok and have not suffered during the last 6 years financial calamities.

What do you think.

I work in the ratings business. Essentially Thailand has A- economics, a BB+ bureaucracy and a B- political class. The current BBB+ is secure for now but could be under pressure should government spending (as seems all to likely) get out of control. Ditto political interference with the BoT and therefore monetary policy.

So if the BBB+ is under pressure or could be do you think I am going down the right line of thinking.

Not putting eggs in one basket as maybe BlackJack was referring to my comments I don't know but when your income is derived outside the exchange rate does affect life.

Corruption hurts Thailands credit rating!....

Any chance we could bribe someone for a better rating?

Looks like it wont be getting better soon