Thailand Chaos Threatens Downgrade On Sovereign Debt

Ratings on the sovereign debt of Thailand may be cut as the country plunges into political chaos. S&P and Moody’s today warned that their ratings on the nation’s debt may be downgraded.

For now both S&P and Moody’s are maintaining their Thai sovereign ratings. But both companies say they are closely monitoring the situation. The Thai Baht plummeted in overnight trading as the situation further deteriorated, with Thai royal army units reportedly fired into crowds of pro-Thaskin protesters in Bangkok.

For at least a year Thailand has been rife with fears of a military coup, although exactly which political factions would engineer the coup has been a matter of some debate. From what we could tell on a recent trip to the country, different political factions seemed to be planning their own coups to pre-empt other factions from carrying out their own coup. Everyone involved, of course, denies having any such intention.

Thailand’s international reserves remain strong, if a bit weakend. Thailand’s international reserves declined to $116.38 billion at the end of March. Foreign currency reserves fell to $113.55 billion, while the reserve position with the IMF declined to $206.34 million.  Gold reserves decreased to $2.49 billion from $2.57 billion.

Thailand’s fiscal position has been facing increasing challenges.  Tax revenues have eroded as both the domestic and international economies have slowed, while the plans for government stimulus spending have increased budget deficits. To fund the budgetary shortfall, the government has had to borrow extensively. The public debt has grown from 50 per cent of gross domestic product to somewhere near 60 per cent. Continued political trouble is expected to make the situation even worse.

The pivotal role of the Thai baht in the 1997 Asian financial crisis probably creates exagerated attention on its current troubles. Memories of the debt-driven crisis are still fresh in South East Asia. By most accounts, Thailand’s financial situation is far better than it was in 1997.

Research Edge produced this chart showing Thailand’s major developed trading partners.


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