Thai Baht Slumps After Military Seizes Control Of Government

[Jai Dee]

Thai Baht Slumps After Military Seizes Control of Government

Sept. 20 (Bloomberg) -- Thailand's currency slumped after the military deployed troops and tanks to seize control of Bangkok from Prime Minister Thaksin Shinawatra.

The baht had the biggest loss since May 15 after armored vehicles rolled into the capital yesterday night while Thaksin was at a United Nations meeting in New York. Army Chief Sondhi Boonyarataklin, 59, temporarily assumed the duties of the prime minister and declared allegiance to King Bhumibol Adulyadej. Government offices, banks and the stock market were closed.

Thailand, ruled by a caretaker government headed by Thaksin since February amid an election dispute, is already forecasting the slowest growth in five years because lawmakers can't approve 1.7 trillion baht ($45 billion) in infrastructure spending. Investors said the nation's 18th coup in the past 60 years was unlikely to trigger declines in emerging-market securities as happened after Thailand's devaluation in 1997.

"It is far from certain that the coup will succeed and if it succeeds, we don't know exactly what kind of government will follow,'' said Marc Faber, managing director of investment firm Marc Faber Ltd., who lives in the northern Thai city of Chiang Mai. Still, he added, "the conditions of Asia today are totally different than the conditions were prior to the Asian crisis.''

The baht dropped 1.2 percent to 37.72 per dollar at 8:57 a.m. in Bangkok from 37.26 late Asia yesterday. The currency is still up 8.8 percent this year, the biggest advance among 15 Asian currencies tracked by Bloomberg, because of record exports.

The Philippine peso dropped 0.4 percent to 50.32, the Indonesian rupiah weakened 0.3 percent to 9,188 and the Malaysian ringgit declined 0.2 percent to 3.6873. Japan's yen rose 0.4 percent to 117.34.

Royal Intervention

Criticism of Thaksin, a 57-year-old billionaire, has mounted since his family's sale in January of its 49.6 percent stake in Shin Corp., a holding company, to investors led by Singapore's state-run Temasek Holdings Pte for a tax-free $1.9 billion. An April 2 election called by Thaksin was boycotted by opposition parties and later annulled by a court.

The baht pared losses after falling by as much as 1.9 percent on speculation the king will resolve the crisis. Sondhi said in a televised address today that coup leaders plan to return power to the people.

King Bhumibol Adulyadej, 78, on April 25 asked two of the country's top courts to help solve the election dispute. In 1992, the king summoned General Suchinda Kraprayoon and protest leader Chamlong Srimuang for a meeting broadcast live on television. As both lay prostrate before him, the monarch lectured them. Suchinda, who had taken power in a coup a year earlier, resigned.

Slower Growth

"We actually see this as having long term benefits,'' said Craig Scholl, senior fund manager at State Street Global Advisors Sr. Portfolio Manager in Boston, who manages over $40 billion including Thai shares. "The prime minister is the jockey, but the horse is owned by the king.''

The government this month forecast growth in Southeast Asia's second-largest economy will cool from a 5.5 percent pace in the first half because of delays in public spending.

The risk of owning Thai government bonds jumped to a two- year high, according to traders betting on the creditworthiness of countries in the credit-default swaps market. The price of the contracts surged to $55,000 from $35,000 yesterday, according to Morgan Stanley. The contracts pay investors $10 million in exchange for the bonds should the government default in the next five years.

Standard & Poor's may cut Thailand's eighth-ranked BBB+ credit rating, after placing it on negative watch. Kim Eng Tan, an associate director in Singapore, said the firm will make a decision as to whether to lower Thailand's credit rating within 30 days.

Short-Term Capital

"Existing problems in Thailand, such as banking reform, need structural changes and it is unlikely we will get those without an elected government,'' Tan said in a telephone interview from New York, where he was on a business trip. Investment projects may also be delayed, he said.

Standard & Poor's raised Thailand's rating one notch to BBB+ in August 2004, placing it three levels above investment grade and in line with Hungary and Poland.

The Asian currency crisis last decade was triggered in part because of the economies' dependence on short-term private capital from overseas, which poured into the region throughout the 1990s. Capital suddenly fled those countries, causing their currencies to plunge and making it harder for the countries to repay their foreign debt.

Currency Crisis

"The situation is very different than it was in 1997 and 1998, when you had large current account deficits in the region and large vulnerability because of borrowing,'' said Michael Mussa, the IMF's research director in 1997 and 1998 who is now an economist at the Institute for International Economics in Washington.

Thailand reported a $309 million current account surplus in July, following an excess of $65 million in the previous month, the central bank reported Aug. 31. Exports climbed to a record. For the full year, the country may post a current-account excess of $3.6 billion, or 1.8 percent of gross domestic product, according to Credit Suisse forecasts.

Assassination Plot

A native of Chiang Mai, in northern Thailand, Thaksin first became prime minister with his Thai Rak Thai -- or Thais Love Thais party -- recording the most resounding election victory since the abolition of the absolute monarchy in 1932. The party increased its win in a 2005 poll.

Thai police on Aug. 24 defused a bomb that they said was intended to kill Thaksin in a car that was found abandoned near the premier's house. At least five military officials have been arrested in relation to the alleged assassination plot.

Source: Bloomberg - 20 September 2006

[ding]

Well Jai Dee it hit 38/USD and is stabilizing it seems. I'm surprised at the confidence and discipline instilled after the '97 house of cards. It looked like it was spiking wildly but ended in the middle.