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.