Thailand's foreign currency rating cut
Thailand's foreign currency rating cut
TOKYO (AFP): The Japan Bond Research Institute downgraded
yesterday Thailand's long-term foreign currency rating, affecting
90 billion yen (US$800 million) worth of samurai bond issues.
In lowering its rating from "AA-minus" to "A-plus," the
institute said Thailand's economic slowdown was being driven by
the same factors which triggered the bursting of Japan's bubble
economy in the early 1990's.
"Thailand's strong economic fundamentals, which have
underpinned its creditworthiness in the past, will be affected
adversely by the recently-started economic slowdown, proceeding
with asset deflation caused by excessive investment," a statement
said.
"Economic growth will recede faster than expected because of a
number of structural problems," the institute said. "Substantial
time will have to transpire before recovery sets in.
"The reason for this is that Thailand is being faced with the
same sort of asset deflation experienced by Japan at the start of
the 1990s, which was characterized by the collapse of the real
estate and stock market booms and a subsequent long period of
dull markets."
While Thailand can be expected to achieve higher growth than
Japan, "the government has only a limited scope to implement the
fiscal and monetary policies necessary for economic recovery, as
at least in the short term its priority remain the stabilization
of the external balance."
"For example, in order to secure the inflow of external funds,
the government will have to maintain interest rates at high
levels," it said.
The institute welcomed government efforts to address external
imbalances rather than stimulate the economy but noted that
Thailand had experienced three waves of speculative attacks on
the baht over the past ten months.
"It is expected that unstable overseas capital movements,
including currency speculation, will persist for a considerable
time," it warned.
"To avoid foreign currency liquidity risks and to give the
government greater scope for its monetary policy, the external
financial situation must be stabilized by restoring international
confidence in the strength of Thailand's domestic economy and the
efficacy of the government's policies.
"Also, a stable currency is important in attracting foreign
direct investment which has played a major role in forming the
industrial export base of the country," the statement said.
The institute said government policies were "bearing fruit"
with the current account deficit narrowing, the growth of short-
term debt "under control" and foreign exchange reserves remaining
at a "high" level.
"Nevertheless, if recovery is delayed, dissatisfaction with
the government's present policies could grow, placing the
government in a difficult situation," it said. "So the government
does not have much time on its hands."
The institute also assigned a first-time short-term foreign
currency rating of "A-1" to the country, noting that short-term
borrowings accounted for 43.6 percent of Thailand's external debt
at the end of 1996.
Such an exposure had left Thailand's foreign currency
liquidity more vulnerable to international fund movements than
that in other Asian countries.
"However, most of these short-term funds are procured through
the Bangkok International Banking Facility," it said.
"In addition, a large proportion consists of finance provided
for the local investments of foreign companies through the local
branches of foreign banks, and as such comprise funds borrowed
from the headquarters in the relevant country.
"Therefore, only some 50 percent to 60 percent of short-term
borrowings are unstable, so the problems regarding this debt
structure are not as great as they might originally appear. In
addition, such short-term borrowings can be covered adequately
out of foreign exchange reserves," it said.