S&P puts Thailand rating under watch with negative implications, post coup

Standard & Poor’s Ratings Services said today that it placed its ‘BBB+’ long-term foreign, ‘A’ long-term local, ‘A-2′ short term foreign, and ‘A-1′ short-term local currency sovereign credit ratings on the Kingdom of Thailand on CreditWatch with negative implications.

 According to Standard & Poor’s credit analyst Kim Eng Tan, the action reflects the possibility of sustained deterioration in the political situation in Thailand arising from an overnight military coup.

“A caretaker government has ruled Thailand since April 2006, following an election that failed to produce a government in accordance with the country’s Constitution,” said Mr. Tan. “Failure to return to civilian rule in accordance with the Thai Constitution in the near term would not only extend the existing state of policy paralysis, but also severely affect the country’s investment climate,” he added.

Mr. Tan explained that the political uncertainties arising from the coup, with the possible postponement of an election expected in November of this year, could impair creditworthiness—although fiscal and external flexibility provide a buffer, at least in the short term.

“If prolonged political uncertainty and diminished investor confidence undermine effective decision making and the government’s economic and financial strengths, a negative outlook or a downgrade is likely,” Mr. Tan noted. “A fairly rapid return to civilian rule in accordance with the country’s constitution and renewed commitment to macroeconomic stability and needed reform likely would lead to the affirmation of existing ratings,” he concluded.