S and P's downgrades battered Thailand again

S and P's downgrades battered Thailand again

BANGKOK (AFP): Credit ratings giant Standard and Poor's (S
and P's) yesterday slashed Thailand's long- and short-term
foreign currency ratings, saying political turmoil was
undermining efforts to turn around the ailing Thai economy.

The action came just a day after its rival Moody's delivered
more bad news to troubled Thailand when it cut a key credit
rating because of concerns over Bangkok's ability to implement
crucial economic reforms.

S and P's said its move reflected the country's worsening
political turmoil which is undermining drives to restore battered
confidence in Bangkok's economic policy and avert a meltdown of
the economy.

The US ratings house lowered Bangkok's long-term foreign
currency ratings to "BBB" from "A-" and its short-term rating to
"A-3" from "A-1."

S and P's had also cut its long-term rating on Thailand's
baht-denominated debt obligations to "A" from "AA-" and its
short-term local currency rating to "A-1" from "A-1+", with the
long-term ratings outlook remaining negative.

"Weak political leadership ... continues to impede the
restoration of policy credibility and financial sector reforms,"
the New York-based agency said in a statement received here.

"Cabinet resignations last week, including Finance Minister
Thanong Bidaya highlight the challenge of building and
maintaining political consensus on key policy initiatives
envisaged under the IMF adjustment program," it said.

Thailand is committed to implementing tough International
Monetary Fund conditions under a massive 17.2 billion dollar
bailout package extended in August to help prevent a meltdown of
the crippled economy.

Among the conditions are a key restructuring of the battered
financial sector, groaning under the weight of massive bad debts,
and an undertaking from the government not to interfere in the
economy to allow the healing process to set in.

But S and P's latest warning stressed fears that political
power-play, procrastination and wrangling may damage the chances
of the IMF's second biggest bailout deal from taking effect.

The government was then forced to promise a major cabinet
reshuffle aimed at reviving its tarnished image, a move further
throwing the economy into uncertainty.

The moves caused panic in the stock and currency markets which
plummeted amid warnings that Thailand would not be able to
achieve the IMF conditions and targets, which could result in
rescue funds being frozen.

S and P's said the crisis, which brought thousands of angry
Thais out onto the streets of Bangkok demanding Chavalit's
resignation, could trigger elections next year which could cause
"substantial policy slippage."

"Continued lukewarm commitment to reform may also raise the
cost and constrict the availability of short-term credit and
jeopardize the future official creditor support," Standard and
Poor's said.

It also cited ongoing balance of payment pressures and high
short-term external debt, which amounts to more than 40 percent
of exports this year, as a source of Thailand's external payments
vulnerability.