In a special comment released on Tuesday, Thomas Byrne, the Singapore-based Senior Vice President in Moody's Sovereign Risk Group, said "Escalating political uncertainties -- in view of the stand-off between protestors and the country's coalition government -- do pose a threat to not only the democratically elected government of Prime Minister Samak Sundaravej, but also to long-term economic stability."
Moody's assigned "Baa1' sovereign ratings to Thailand.
Previously, in the aftermath of the September 2006 coup that had ousted democratically elected Prime Minister Thaksin, Thailand's policy framework had proven durable and the country's fiscal and external credit fundamentals remained intact, although a full restoration of investor confidence proved elusive.
"However, the rise in political uncertainty over the past couple of months -- coupled with a mixed economic performance -- is clouding the economic horizon, making a restoration of investor confidence even doubtful in the near future," says Byrne.
"The occupation of Government House and the siege of the Phuket and Krabi airports by the so-called People's Alliance for Democracy (PAD) calls into question not only the viability of democracy in Thailand, but also the political neutrality of the court system, which has failed to enforce its own injunction against the actions of the PAD," says Byrne.
"If counter-demonstrations by the ruling-party friendly Democratic Alliance Against Dictatorship match the intensity and disruptiveness of the PAD, then a polarization could intensify to the point where political stability is jeopardized, so raising the specter of intervention again by the army," says Byrne.
Byrne also says that more stress seems to be building up on Thailand's external payments position than compared with what happened in the wake of the September 2006 coup, and official foreign exchange reserves are declining from their May peak, although they are still large enough to cushion against any shocks related to foreign creditor confidence in the near term.
"In conclusion, the escalation of political disturbances has introduced new uncertainties which compound the economic challenges facing Thailand, as well as other Southeast Asian economies, from the deterioration in global economic conditions," says Byrne.
Byrne was speaking on conjunction with the release of a Moody's special comment -- which he authored -- on the outlook for Thailand. The report is entitled, "Thailand's Political Uncertainties Overshadow Its Economic Challenges".