June 25, 1999 -- FITCH IBCA, the London-based international rating agency,
has raised the sovereign rating of Thailand to investment grade, citing a marked
improvement in the country's external debt and liquidity conditions.
Fitch IBCA's rating upgrade for Thailand yesterday is in sharp contrast to
the report issued by Moody's Investors Services on Tuesday. This gave a highly
negative view of the country by stating that all Thai banks were ''heavily
insolvent in true economic terms''.
Paul Rawkins, director of sovereign ratings for Fitch IBCA, told The Nation
from his London office that the decision to upgrade Thailand's sovereign rating
to investment grade reflected the agency's view that the country had made
significant progress in improving its external account, had settled all its
foreign-exchange swap obligations and had strengthened its external-debt
position.
''These were all positive factors when we did our forecast on Thailand,''
Rawkins said. ''The balance of payments remain strong, driven by foreign direct
investment, portfolio investment or by non-debt flow of capital.''
Fitch IBCA has upgraded Thailand's long-term foreign currency rating from
'BB+' to 'BBB-' (BBB minus) and the short-term foreign currency rating to 'F3'
from 'B'.
Fitch IBCA's move to upgrade the sovereign rating indicates that
international rating agencies are divided over Thailand's ability to service its
external debts.
Standard & Poor's and Moody's, both US rating agencies, still keep
Thailand's sovereign rating below investment grade, putting all the debts issued
by the Thai government in the same class as junk bonds.
The implications of the rating upgrade is that it will pave the way for
Thailand to return to the international financial markets in full stride,
helping the Thai government and subsequently Thai corporates to borrow at
cheaper costs from international lenders and investors.
Moreover, foreign investment funds or foreign banks, which have restrained
themselves from investing in or lending to countries with a junk rating, are
likely to start returning to Thailand to rebuild their presence.
In its statement, Fitch IBCA said: ''Improving external debt and liquidity
indicators, combined with the government's unblemished debt-service record,
support the uplift in the sovereign long-term foreign-currency rating to
investment grade.
''External debt is set on a declining trend and short-term debt as a share of
total debt fell to 27 per cent in 1998 from 50 per cent in 1995. Disbursements
from an IMF-led financial rescue package have facilitated the unwinding of some
US$20 billion of forward foreign-exchange obligations.''
Based on the present trend, Fitch IBCA projected that Thailand's
foreign-exchange reserves, which stand at about US$31 billion, could rise to
US$50 billion by the end of 2000.
This, it added, can be attributed to the current-account surplus by 7-10 per
cent of gross domestic product and by a strengthening of the capital and
financial accounts.
Notable in Fitch IBCA's assessment is a recognition of Thailand's decision to
tackle the economic and financial woes through market-oriented approaches rather
than through heavy government intervention.
''This policy stance is in keeping with its longstanding tradition of limited
state intervention, but has sometimes given the impression that the government
is dragging its feet,'' the agency said.
''However, Fitch IBCA believes that the government remains unstinting in its
pursuit of structural reforms: bank recapitalisation is well advanced and the
successful passage of key legislation through Parliament has set the stage for
an acceleration of corporate restructuring. Nonetheless, very high levels of
non-performing loans indicate that this process still has some way to go.''
Fitch IBCA's rather positive view of the Thai banking sector contrasts with
Moody's, whose negative report on Thai banks drew acute criticism from local
officials and analysts.
Dr Supachai Panitchpakdi, the deputy prime minister, said Moody's report
might be aimed at signalling more caution to investors as capital starts flowing
back to the region.
''Moody's may want to create a balance by cautioning against too high capital
flows to Asia. If the capital shifts quickly it could create an impact on the
market similar to the way in which the US stock market might be affected by the
seemingly imminent rise of interest rates,'' he said.
BY THANONG KHANTHONG