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Court's decision is negative to economy: Moody's

The most recent political developments, culminating into the Constitutional Court's decision yesterday, add further downside risks to the Thai economy, said Moody's Investors Service.



"The ruling is credit negative because it threatens to prolong the country's political crisis, which has lasted for six months and makes a near-term compromise solution unlikely. It also heightens the risk of violent clashes between opponents and supporters of Yingluck's Pheu Thai Party. Both would negatively affect investor and consumer confidence and increase the downside risks to Thailand's growth outlook for 2014-15," the rating agency said in a report released today.

The court on Wednesday ordered caretaker Prime Minister Yingluck Shinawatra and nine of her cabinet members to step down on the grounds that their 2011 decision to transfer Thailand's national security chief was unconstitutional. The ruling settles allegations of an abuse of power in relation to the transfer of then-National Security Council (NSC) Secretary-General Thawil Pliensri to an advisory role in 2011 and replacing him with a relative of Yingluck.

Moody’s recounted that Wednesday's ruling marks the third time in six years that the judiciary has ousted a Thai prime minister including the court's late 2008 verdicts on Samak Sundaravej and Somchai Wongsawat.

"Thailand's political crisis is increasingly challenging the country's strong credit fundamentals. The government’s robust financial position - underscored by low funding costs, a favourable debt structure and limited external vulnerabilities - supports our stable outlook on Thailand's rating. But a continuation of political turmoil would erode the country's core credit strengths," it said.

Thailand’s real economic growth has already been negatively affected, with the economy expanding only 2.9 per cent in 2013 - far below the 2012 level of 6.5 per cent and weaker than an average of 3.8 per cent of the past 10 years.

Moody’s noted that the most recent developments add further downside risks to its growth forecasts of 2.7 per cent in 2014 and 3.2 per cent in 2015.


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