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Protests put sovereign rating at risk

Situation could trigger more sell-off of shares amid US QE tapering

The bad news is far from over even though political tensions have eased, as the prolonged protests could damage Thailand's sovereign rating and exacerbate a sell-off of Thai shares in light of monetary-policy tapering in the United States.

Rangsan Sriworasart, permanent secretary at the Finance Ministry, now fears the country's credit rating could be downgraded, while a Bank of Thailand official yesterday said gross domestic product might expand by less than previously expected after the prolonged unrest.

Though the SET Index gained 0.70 per cent to 1,383.89 points yesterday, the Stock Exchange of Thailand has apparently lost attractiveness to foreign investors.

Foreign investors remained net-sellers yesterday, with a net-sell position of Bt5.92 billion, resulting in a total of more than Bt12 billion so far this week, and pushing the year-to-date net-sell to Bt165.6 billion.

And there seems to be no end in sight, with weak economic data, tapering of the US quantitative easing programme and the political protests.

BlackRock, Julius Baer and Kokusai Asset Management said anti-government protests that led to three deaths last weekend would weigh on an economy that is already grappling with a current-account deficit and the prospect of reduced US Federal Reserve stimulus.

While Thai stocks and the baht recouped losses in four months after political street clashes killed more than 90 people in 2010, growth now is less than a quarter of the pace it was then.

The baht has dropped 7.5 per cent since May 22, when US Federal Reserve chairman Ben Bernanke first signalled that the US central bank might reduce the monetary stimulus that has fuelled capital inflows into emerging markets.

"The Thai baht at this point is one of our bigger underweights," Joel Kim, the head of Asia-Pacific fixed income at BlackRock, said at a briefing in Singapore on Monday.

Bank of Thailand director Roong Malikamas said the political protests, which began on November 1, could fuel pressure over the Thai economy for the final two months of the year, when there remained no positive factors for expansion.

The central bank expects GDP growth of 1 per cent for the current quarter and 3 per cent for the full year. The Fiscal Policy Office now predicts full-year growth of 3 per cent after the protests. Its previous estimate was 3.7 per cent.

Based on the Finance Ministry's assessment of the political impacts on the Thai economy, a likely credit-rating downgrade is seen as a long-term effect after short-term impacts on the nation's income, particularly from tourism and related businesses such as hotels and restaurants, and a possible delay in disbursement of public investment, Rangsan said.

Overall investment could face difficulties in the medium term as private investment may slow down after a likely suspension of public investment, he said, adding that imports and exports could be lower than previously expected and affect government revenue.

Deputy Finance Minister Benja Louichareon said government revenue collection had met the target for the first two months of the fiscal year, October and November, although there was lower-than-expected revenue collected by some departments, particularly Customs, because of lower imports.

Somchai Sajjapong, director-general of the Fiscal Policy Office, conceded that if the protests dragged on, tourism could be in trouble. Thirty-four governments have issued warnings to their citizens about travel to Thailand. They represent 65 per cent of annual tourist arrivals.

He also expressed concern about slow government budget disbursement during the first quarter of the fiscal year.


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