Yingluck Shinawatra

            Thailand's opposition Puea Thai Party (PTP) led by Yingluck Shinawatra, the younger sister of former Prime Minister Thaksin Shinawatra, has won a majority of the 500 seats in the general elections held on July 3, 2011, and will form the new government. Puea Thai Party has announced the formation of a five-party coalition. The Democratic Party, the core of the incumbent coalition, only secured 159 seats and Prime Minister Abhisit Vejjajiva conceded defeat.

Standard & Poor's Ratings Services will focus on the new Thai government's economic and fiscal policies as well as further political developments. Thailand  has faced political uncertainty and instability since 2006. Because of the uncertainty and frequent changes of government, implementation of long-term infrastructure projects and educational reforms has been difficult. The extent and pace of such policies are important for medium-term growth and improving living standards.

"The pace and the degree of restoration of political stability will have significant implications for our sovereign ratings on Thailand," said Standard & Poor's credit analyst Takahira Ogawa. "Given the depth of the political divide, complete reconciliation of the country in the near future may be difficult."

While Thailand's fundamentals remained strong so far, political uncertainty is likely to affect growth prospects, economic stability, and the government's fiscal position in the medium to long term. "In our view, there is still some degree of political risk, because we are uncertain about the anti-Thaksin group's reaction to the election results, PTP's policies, and the judgment by judiciary," Mr. Ogawa said.

The Puea Thai party has said that it intends to expand the optical fiber and the train networks in the country. Both plans are likely to bring economic benefits, if implemented according to the plan.

 

However, in our view, there is downside risk on the government's fiscal position, if the new government implements many of the policies that the Puea Thai party announced during its election campaign. For example, introduction of the rice mortgage system based on a guaranteed rice price at Thai baht (THB) 15,000 or THB20,000 per ton, depending on the quality of rice, and revival of a fixed-fee healthcare system (THB30 per visit), could increase the government's fiscal expenditure significantly over the years.
The Puea Thai party also has plans to provide free WiFi facilities in the cities and tablet computers for all primary school students. "Implementing many of these policies without having proper appropriation of the revenues would adversely affect the country's fiscal position," Mr. Ogawa noted. Countermeasures against global recession and the populist policies in past several years have already somewhat eroded Thailand's fiscal strength. Further significant erosion could be detrimental to the current ratings, he cautioned.