Thai Baht, Bonds Slump After Military Coup; Stock Market Closed

Sept. 20 -- Thailand's currency and bonds slumped after the military yesterday seized control of Bangkok from Prime Minister Thaksin Shinawatra. The baht had the biggest loss in four years yesterday after tanks rolled into the capital while Thaksin was in New York attending meetings at the United Nations. Army Chief Sondhi Boonyarataklin temporarily assumed the duties of the prime minister and declared allegiance to King Bhumibol Adulyadej. Government offices, banks and the stock market were closed. Thailand, ruled by a caretaker government headed by Thaksin since February after a disputed election, is already forecasting the slowest growth in five years because 1.7 trillion baht ($45 billion) in infrastructure spending is on hold. Investors said the coup was unlikely to trigger declines in emerging-market securities as happened after Thailand's devaluation in 1997. ``It is far from certain that the coup will succeed and if it succeeds, we don't know exactly what kind of government will follow,'' said Marc Faber, founder and managing director of investment firm Marc Faber Ltd., who lives in the northern Thai city of Chiang Mai. Still, he said, ``the conditions of Asia today are totally different than the conditions were prior to the Asian crisis.'' The baht was little changed at 37.80 per dollar at 8:00 a.m. in Bangkok from 37.77 late in New York yesterday when it dropped 1.3 percent, the biggest decline since July 2002. Thai bonds and a New York-traded funds of the nation's stocks also declined yesterday. The baht is still up 8.5 percent against the dollar this year, beating the Indonesian rupiah for the biggest advance among 15 Asian currencies tracked by Bloomberg, as record exports spurred a trade surplus.

Debt Risks

The government this month forecast growth in Southeast Asia's second-largest economy will cool from a 5.5 percent pace in the first half because of delays in public spending. The risk of owning Thai government bonds jumped to a two- year high, according to traders betting on the creditworthiness of countries in the credit-default swaps market. The price of the contracts rose to more than $47,000 from $33,000 today, according to HSBC Holdings Plc. The contracts, which pay investors $10 million in exchange for the bonds should the government default in the next five years. Shares of mutual funds that invest in Thailand dropped in U.S. trading yesterday. Thai Fund Inc. fell 3.7 percent to $8.65 after tumbling as much as 7.1 percent. Thai Capital Fund Inc. lost 4 percent to $9.75.

`More Pressure'

Thaksin has faced increasing pressure to step down since heading a caretaker government after dissolving Parliament in February. Criticism of Thaksin, a billionaire, has mounted since his family's sale in January of its 49.6 percent stake in Shin Corp., a holding company, to investors led by Singapore's state- run Temasek Holdings Pte for a tax-free $1.9 billion. The acquisition sparked protests and a boycott of Shin products. Thailand's military announced the coup after deploying tanks and troop carriers in downtown Bangkok. Two tanks blocked the main entrance to the Government House, where Thaksin's offices are located and three more parked outside the UN building. Standard & Poor's may cut Thailand's eighth-ranked BBB+ credit rating, after placing it on negative watch. Kim Eng Tan, an associate director in Singapore, said the firm will make a decision as to whether to lower Thailand's credit rating within 30 days.

Short-Term Capital

``Existing problems in Thailand, such as banking reform, need structural changes and it is unlikely we will get those without an elected government,'' Tan said in a telephone interview from New York, where he was on a business trip. Investment projects may also be delayed, he said. Standard & Poor's raised Thailand's rating one notch to BBB+ in August 2004, placing it three levels above investment grade and in line with Hungary and Poland. Some other emerging-market currencies fell, including the Brazilian real, which lost 0.8 percent, and the Indonesian rupiah, which dropped 0.6 percent. The Asian currency crisis last decade was triggered in part because of the economies' dependence on short-term private capital from overseas, which poured into the region throughout the 1990s. Capital suddenly fled those countries, causing their currencies to plunge and making it harder for the countries to repay their foreign debt.

Currency Crisis

As international investors shunned short-term government bonds, Russia could no longer finance its budget and defaulted on $40 billion of debt in August 1998. ``The situation is very different than it was in 1997 and 1998, when you had large current account deficits in the region and large vulnerability because of borrowing,'' said Michael Mussa, the IMF's research director in 1997 and 1998 who is now an economist at the Institute for International Economics in Washington. Thailand reported a $309 million current account surplus in July, following an excess of $65 million in the previous month, the central bank reported Aug. 31. Exports climbed to a record. For the full year, the country may post a current-account excess of $3.6 billion, or 1.8 percent of gross domestic product, according to Credit Suisse forecasts.

Assassination Plot

A native of Chiang Mai, in northern Thailand, Thaksin first became prime minister with his Thai Rak Thai -- or Thais Love Thais party -- recording the most resounding election victory since the abolition of the absolute monarchy in 1932. The party increased its win in a 2005 poll. Thai police on Aug. 24 defused a bomb that they said was intended to kill Thaksin in a car that was found abandoned near the premier's house. At least five military officials have been arrested in relation to the alleged assassination plot. Yield premiums on Thailand's 7.75 percent bond due in April 2007 compared with benchmark Treasuries rose 2 basis points to 60 basis points, the highest in a month, HSBC prices show. [From internet] best wishes, Suman Mukherjee India.