Thursday, May 28, 2009

Moody's Picking on Thailand

The Nation:

Moody's Investors Service has been fast to pick on Thailand. Earlier, it pointed out that the Thai economic downturn is going to be one of the worst in the region. Then it downgraded the credit outlook of Thailand from positive to negative. Now, Moody's announces that it has placed the debt and deposit ratings of 11 banks in Thailand on review for possible downgrade due to the deteriorating fiscal position of the Thai government. The banks affected are Bangkok Bank, Bank of Ayudhya, the Export-Import Bank of Thailand, the Government Housing Bank, Kasikornbank, Krung Thai Bank, Siam City Bank, Siam Commercial Bank, Standard Chartered Bank Thailand, TMB Bank and United Overseas Bank Thailand.

"The review of their debt and deposit ratings will look at the extent to which Thailand's ability to provide support to its banking system, if needed, is converging with the government's own debt capacity as a result of the ongoing global economic and credit crisis," says Karolyn Seet, a Moody's assistant vice president and analyst.

"Moody's believes that most governments are at least as likely, if not more likely, to support their banking systems as they are to service their own debt - a view that has traditionally led to bank ratings often benefiting from significant uplift due to systemic support," says Seet. "However, as the financial crisis continues, the capacity of a country and its central bank to support its banks converges with, and is increasingly constrained by, the government's own debt capacity."


While Moody's is fast to revise Thailand's credit rating, it has failed to revise the ratings of the countries or institutions with which it appears to have a cosy relationship. A week before the collapse of Lehman Brothers in September 2008, Moody's did not raise any alarms on the US investment bank. Moody's and other credit rating agencies have performed poorly during the financial crisis, failing to foresee or to give proper warnings to investors about the health of economies and financial institutions. Critics from this part of the world have been blaming the international credit rating agencies for being part of the cronyism of global capitalism.

In the UK and United States, the financial bail-outs have grown to eye-watering proportions in just a matter of months. Yet Moody's has been reluctant to assign new ratings for the debt and credit worthiness of these two countries and their financial institutions. As it currently stands, the commitments and guarantees of the US and the UK governments are equivalent to almost 90 per cent of GDP. Last year the US provided US$12 trillion (Bt412trillion) in bail-out money to prop up its banking system, compared with $2 trillion for the UK. The US national debt now stands at about $8 trillion compared to the size of its economy of $13-14 trillion.

I am guessing this is Thanong.

Thailand doesn't equal the US. The US has an open dynamic economy, the currency is the standard, people pay their taxes, and the government has never defaulted on its debt. Should the US get nicked for having too much debt? It depends. But there is no sign the US will default on its debt. Compared to Japan, the US is small potatoes. Japanese debt is 170% of GDP compared for 80% for the US.

Thailand is different because it is not a world power. It has major political problems with no coherent economic policies. It is a protectionist country with a currency nobody wants. There is no market for Thai debt. The Thai tax system is a joke. The economy is not diversified. So it will have to pay higher interest rates. It has nothing to do with being picked on. That is the reality.

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