S&P holds Thai ratings steady as court dismisses Prime Minister

SINGAPORE - Standard & Poor's has held its current sovereign credit ratings on Thailand (foreign currency BBB+/Stable/A-2; local currency A-/Stable/A-2; ASEAN scale axAA/axA-1) following the dismissal of caretaker Prime Minister Yingluck Shinawatra by Thailand's Constitutional Court on the charge of "abuse of power", saying that a possible conviction was part of a number of scenarios already incorporated into its ratings – “reflecting our expectations of protracted and potentially increasing political instability”.

“However, we view this development as credit negative. It raises the risk of violent confrontation that could ultimately involve the military, and will make any sort of rapprochement between the opposing sides of Thailand's political divide more difficult,” S&P says.
“Forcing out Ms. Yingluck is set to aggravate already-deep divisions in Thai society. The dismissal follows months of often unlawful Opposition efforts to unseat her, and the nullification of an election that her party, Phue Thai, won in February. The court's move is likely to reinforce the belief among the largely rural supporters of Yingluck's party that the judiciary is biased toward the establishment--made up of the urban elite, the military, and royalists.”
Standard & Poor’s says it believes the Prime Minister's dismissal will also likely further delay fresh elections - scheduled for July 20--and, with it, the formation of a functioning Government. “Already weak business and consumer confidence will continue to deteriorate. The longer the political uncertainty persists, the more damage it will inflict on Thailand's already weakened growth outlook.”
The ratings agency said that, while Thailand's generally strong fundamentals provide some cushion, growth may slow further as the absence of a functioning government depresses consumption, and private and public sector investment. “Thailand's strong external profile, modest government debt, and a track record of effective monetary policy continue to support the ratings. But the ongoing political uncertainty and Thailand's relatively low-income economy act as rating constraints.
“We could lower the sovereign ratings if further political instability leads to an unexpectedly sharp deterioration of political and institutional stability beyond what was seen in recent years. This is possible if future political events lead to widespread violence that seriously affects economic activities in the country for a prolonged period.” www.standardandpoors.com (ATI).