Brokers fear sovereign downgrade

Brokers fear sovereign downgrade

The securities industry has expressed worries over the effect of the rice-pledging scheme on Thailand's sovereign ratings, saying the country is at great risk of a downgrade.

They have become especially wary after the government shrugged off criticism by academics and the International Monetary Fund (IMF).

Pattera Dilokrungthirapop, chairwoman of the Association of Securities Companies, said a downgrade would significantly push up financial costs in the private sector.

A downgrade of a country's sovereign rating means its companies must pay higher interest when it wants to borrow or issue bonds.

She said in the wake of political strife, the government's insistence on proceeding with a controversial policy will add to the pressure on the overall economy.

Citing a threat to public debt levels, the IMF suggested the rice scheme's conditions be revised to limit losses.

The government's refusal to heed the advice could lead to a downgrade, said Ms Pattera.

"It's difficult to scrap the policy, as the government uses it as a tool to improve farmers' incomes, but it can bring on a crisis," she said. "But I believe farmers will understand how badly it will damage the country if the policy continues. There must be other ways to help them."

Niwat Kanjanaphoomin, president of the Thai Bond Market Association, said foreign investors this month were net sellers of 40 billion baht due to the political conflicts.

He agreed that apart from politics, some of the government's policies have shaken foreign investor confidence, prompting them to sell Thai bonds.

As well, the US quantitative easing tapering, expected to begin next March, will see funds flow from emerging markets to US bonds.

Mr Niwat said foreign investors now hold 700 billion baht worth of Thai bonds currently, of which 20% or 140 billion baht is short-term bonds.

If domestic risks are rising, the short-term notes will be the first to be sold.

"Political issues indirectly affect investment in bonds. Foreigners are now considering shifting funds to the US, especially if the Fed scales down its Treasury bill purchases. This will affect bond yields worldwide," said Mr Niwat.

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