Thailand

SEB MERCHANT BANKI NG – COUNTRY RI SK ANALYSI S March 17, 2009

important your attention is drawn to the statement on the back cover of this report which
affects your rights.
Analyst: Rolf Danielsen. Tel : +46 8 763 83 92. E‐mail : rolf.danielsen@seb.se
 
The economy is facing a serious setback as traditional export markets contract and as domestic 
political turbulence continues to erode domestic and foreign investors’ confidence in the 
countryʹs future despite reasonably strong economic fundamentals.  
   
Country Risk Analysis 
AIter a bunyant start, 2008 ends in an unexµected decIine. In 2007, lle economy
expanded al a slrong cIip of
aImosl 5°. 2008 aIso began
quile veII, bul aIready in O3
grovll lraiIed as monelary
ligllening lo slave off price
pressures al lle beginning of
lle year began lo laIe loId and
as domeslic consumer and
inveslor senlimenl looI a lil
from groving poIilicaI
lurbuIence. In O4, lovever, lle
economy unexpecledIy
conlracled by more llan 4° as
foreign exporl marIels incIuding for lourism dived and inlernaI poIilicaI lensions
came lo a lead. Tle Ialler resuIled in Iarge demonslralions in BangIoI, bIocIading
lle inlernalionaI airporl and slranding llousands of lourisls for more llan a veeI in
Iale November vliIe aIso freezing mucl lrade incIuding llal of oller Asian
counlries in lransil. AII llis reduced grovll for lle vloIe year lo onIy 2.6°, cIearIy
beIov polenliaI. Mosl seclors vere lil, incIuding reaI slale conslruclion, loleI and
reslauranl services and manufacluring. OnIy financiaI services and agricuIlure
conlinued lo posl posilive grovll rales, aIbeil decIining in lle case of le Ialler, vliIe
slepped up governmenl spending miligaled some of lle negalive effecls of privale
seclor sIov dovn. Tle onIy siIver Iining lo lle disappoinling year-end resuIl vas a
faII in infIalion lo Iess llan 2° in December aIIoving lle cenlraI banI lo Iover ils
poIicy rales.
GDP
-6
-3
0
3
6
2004 2006 2008 2010
%

c
h
a
n
g
e

Tnurism IaIIs nII a cIiII and high-tech exµnrts suIIers dnubIe digit grnwth decIine.
Tovard lle end of lle year numbers of lourisl arrivaIs feII precipilousIy, mainIy
because poIilicaI lurbuIence over severaI monlls lad scarred off visilors in parlicuIar
from oller Asian counlries. In O4, arrivaIs from Clina and Korea dropped 57° and
46° respecliveIy. Tle rapid cooIing of economic aclivilies in major OLCD counlries
since lle onsel of lle nev inlernalionaI credil and Iiquidily cruncl in Oclober, lle
second in lle ongoing gIobaI crisis, lad a delrimenlaI effecl on demand for Tlai
exporls, incIuding of inlegraled circuils, compuler lard disIs and consumer
eIeclronics. As a resuIl, exporls feII by 13° in O4 (YoY), foIIoving slrong grovll
around 30° llrougl lle previous llree quarlers.

SEB Merchant Banking Country Risk Analysis March 17, 2009
The current accnunt baIance turns intn a deIicit. AIllougl imporls aIso feII slarpIy
lovard year-end, leIped in parl by Iover oiI prices, lle lrade baIance for lle vloIe
year ended bareIy in posilive lerrilory. As nel lourism revenues sIipped abruplIy, lle
soIid currenl accounl surpIuses of mosl years since lle Asian crisis in 1997-98 lurned
inlo a deficil of aImosl 1°/GDI. Tlal combined vill some $3 biII. of capilaI
oulfIovs from lle slocI marIel since ils mid-year peaI and significanlIy reduced
foreign inleresl in direcl inveslmenls in lle IocaI economy. As a consequence, lle
ball began lo sIide despile allempls from lle cenlraI banI lo prop up ils vaIue by lle
saIe of some $10 biII. from reserves. Al $94 by year end, lley vere sliII quile slrong,
covering aboul seven monlls of imporls or 3 limes lle combined vaIue of
amorlizalion due in 2009 and slorl lerm debl oulslanding al end 2008. Tley vere
aIso some 50° Iarger llan TlaiIand's lolaI foreign debl, eslimaled al $64 biII. As
sucl, TlaiIand remains Iiquid villoul obvious soIvency probIem. Tlal said, il is aIso
noled llal according lo
eslimales by lle III (Insl. Of
InlernalionaI Iinance,
Waslinglon DC) llere appears
lo lave been a significanl
annuaI capilaI fIigll of more
llan $10 biII. since lle poIilicaI
lurmoiI began a coupIe of years
ago.

Steeµ IaII in tax revenues
weakens the IiscaI baIance.
Tle sudden veaIening of
economic aclivilies in lle
second laIf of 2008 resuIled in
an unexpecled videning of lle
fiscaI deficil lo 2° of annuaI GDI in O4 afler laving posled an overaII baIance in lle
firsl llree quarlers of lle year. As a resuIl, lle secuIar decIine of lle governmenl
debl ralio in aII years since lle Asian crisis, came lo a laIl, Ieaving lolaI pubIic seclor
debl al around 37°/GDI lle same as al lle end of 2007. Despile overaII
underperformance of budgel execulion, governmenl efforls lo boosl lle economy by
Iarge oul paymenls lo various ends in lle finaI monlls of lle year, incIuding
llrougl off-budgel sources, aIso conlribuled lo lle slarp videning of lle deficil. To
slem lle ongoing sIoving of lle economy lle governmenl las enacled a suppIemenl
lo lle presenl budgel of IY2009 ÷ lle financiaI year running from Oclober lo
Seplember, incIuding a slimuIus pacIage of aboul THB117 biII. or some 1° of GDI.
Il viII nov aIso expedile Iey pubIic seclor projecls under ils medium lo Iong lerm
inveslmenl pIan, and acceIerale budgel disbursemenls, vlicl in recenl years lave
lended lo faII slorl of pIans due lo poIilicaI uncerlainlies and bicIering. As a resuIl
ve eslimale lle pubIic seclor deficil lo viden furller lo more llan 5°/GDI. Tlal is
nol surprising given lle circumslances bul il reduces lle room for furller fiscaI
slimuIus in lle fulure.
Tourism and external balance
Source: Reuters EcoWin
2004 2005 2006 2007 2008
P
e
r
s
o
n

(
m
i
l
l
i
o
n
s
)
2
2
3
3
4
4
5
U
S
D

(
b
i
l
l
i
o
n
s
)
-6
-4
-2
0
2
4
6
International Arrivals
Current Account, Balance
Tsunami

Near terms µrnsµects. Tle aullorilies lope llal lle fiscaI slimuIus pacIage and lle
monelary easing of Iale 2008 viII IicI slarl lle economy over lle nexl fev quarlers
supporled by an expecled recovery in lle gIobaI economy lovard lle end of lle
year. In llal scenario lle governmenl foresees onIy a Iimiled conlraclion of Iess llan
1°/GDI in 2009 vill lle exlernaI currenl accounl in overaII baIance. In a Iess
benign, bul in our viev a more reaIislic, scenario lle gIobaI economic recession couId
veII conlinue inlo 2010 before reacling a fIal bollom foIIoved by a prolracled bul
veaI recovery. In llal case, TlaiIand couId face a deeper recession vill aclivily
conlracling more llan 5° in 2009. Tlal couId be foIIoved by a Iagged and
unsynclronized recovery reIalive lo main exporl marIels in lle same vay as lle
dovnlurn of mosl emerging marIels aIso al firsl appeared decoupIed from
deveIoped counlries. WliIe lle exlernaI baIance slouId sliII prove manageabIe, vill
lle currenl accounl relurning lo a moderale surpIus, lle inlernaI imbaIances couId
vorsen significanlIy raising lle risI of sociaI and poIilicaI dislurbances. WliIe al
2

SEB Merchant Banking Country Risk Analysis March 17, 2009
1.4° lle unempIoymenl ralio in December vas sliII Iov, il is nolevorlly llal llis
vas on a rising lrend. NormaIIy lle ralio decreases in lle faII.

Banks may Iace testing times. In sucl a scenario vlere lle exlernaI seclor vouId
presenl IillIe puII for lle economy and probabIy Ieave il vill sIuggisl grovll beIov
polenliaI over a Ionger period, unresoIved probIems in lle banIing seclor Iefl over
from lle Asian crisis, couId come lo lle fore and add lo lle accumuIalion of nev
probIem Ioans. Tle raling agency, Slandard & Ioor's, eslimales gross probIemalic
assels in lle Tlai banIing syslem al 20° of domeslic credils, above llose in leaIlly
syslems. Aparl from non-performing Ioans (NII) al 6-7°, llal eslimale aIso incIudes
assels recovered in Ioan vorI-ouls (i.e. reslruclured assels, forecIosures elc.). Tlis
represenls lle mosl imporlanl source of conlingenl IiabiIilies lo lle governmenl,
according lo S&I, vlicl eslimales
lle burden lo lle governmenl
couId reacl as mucl as 44° of
GDI in a reasonabIy vorsl case
scenario. Againsl llis ve aIso nole
lle leaIlly profilabiIily of many
Tlai banIs in recenl years despile
lle absence of any major credil
boom (vill lle exceplion of 2008),
suggesling some inlrinsic slrengll
supporled by a more leaIlly credil
cuIlure deveIoped over lle recenl
decade. BanIing seclor
fundamenlaIs are slronger loday
llan prior lo lle Asian crisis, bul
lle lesling limes alead couId aIso
Iasl Ionger llan during lle Asian crisis.


PnIiticaI crisis enters its third year. Ior severaI decades, TlaiIand vas a slory of
unslabIe poIilics vill slorl-Iived governmenls aIlernaling vill miIilary regimes. In
1997, lle nalionaI assembIy adopled lle Iasl in a series of ever clanging
conslilulions, paving lle vay for a more slabIe parIiamenlary democracy under a
conslilulionaI monarcly. In 2001, lle firsl eIeclions under llal conslilulion voled
Mr. TlaIsin, one of TlaiIand's riclesl businessmen, inlo office as prime minisler on
a licIel scorned by many of lle urban middIe cIass as popuIisl poIicies vooing lle
poor masses in lle counlry side. In 2005, le remained in office foIIoving IandsIide
eIeclions marred by aIIegalions of vole-buying, bul vas soon confronled vill
accusalions of abuse of poIilicaI pover for personaI benefils. IoIilicaI lurbuIence
erupled vill Iarge anli-governmenl demonslralions in BangIoI, and in 2006 lle
miIilary looI pover sending lle IM inlo exiIe. Afler a year, lle generaIs yieIded lo
demands for nev eIeclions, vlicl relurned lo office lle poIilicaI forces surrounding
Mr. TlaIsin aIbeil under anoller IM and anoller parly name as courls nov lad
banned Mr. TlaIsin from poIilicaI office. In Iale 2008, a courl ruIing disbanded aIso
TlaIsin's successor parly. IinaIIy, in Iasl November, Iarge scaIe prolesls and a veeI
Iong bIocIade of BangIoI airporl ended in defeal for lle TlaIsin movemenl as
scores of ils MIs defecled lo lle opposilion, lle Democralic Iarly (IAD), enabIing il
lo form a nev governmenl.
New credits and bad loans
Commercial Banks, Loans, Total loans, THB
Non-Performing Loans, Grand total, ratio to total loans
Source: Reuters EcoWin
2006 2007 2008
P
e
r
c
e
n
t
0,0
2,0
4,0
6,0
8,0
10,0
12,0
T
H
B

(
t
h
o
u
s
a
n
d

b
i
l
l
i
o
n
s
)
5,0
5,5
6,0
6,5
7,0
7,5
Ratio of NPL declined as loan
growth accelerated in 2008

Demncracy and µnµuIism. Some observers beIieve llal llis couId marI lle
beginning of a period of poIilicaI caIm. Tle nev governmenl is Ied by veII-educaled
poIilicians presumabIy of a pragmalic mind sel. Tley lave made conciIialory moves
lovard lle opposilion by up-loIding severaI of lle TlaIsin-movemenl's ruraI
deveIopmenl programs. Hovever, during lle demonslralions incIuding unIavfuI
aclions of Iasl faII, lle IAD, vlose core consliluency is lle urban middIe cIass, aIso
expressed poIilicaI alliludes vlicl many observers lave found in slarI conlradiclion
lo ils name. IAD poIilicians venliIaled ideas llal reguIar democracy cannol vorI in
TlaiIand as Iong as lle ruraI majorily, vlicl gave IandsIide viclories lo lle TlaIsin
camp, remains poorIy educaled and susceplibIe lo vole buying. Tle majorily of lle
3

SEB Merchant Banking Country Risk Analysis March 17, 2009
nalionaI assembIy slouId raller be appoinled based on profession and sociaI group.
If sucl ideas are associaled vill lle nev governmenl, many observers doubl
poIilicaI caIm viII Iasl Iong.

The kingmaker. Tle nev governmenl las a lrump card, lovever. Iev observers
doubl lle regenl's affinily for lle poIily llal surrounds lle IAD parly, incIuding
TlaiIand's lradilionaI arislocracy. Despile llis, King BlumiboI AduIyadej is liglIy
respecled among aII lis subjecls, nol Ieasl lle ruraI poor. Tle TlaIsin-camp may
llerefore cloose lo reduce ils poIilicaI ambilions for nov and vail for lle day lle
Majesly, nov 81, abdicales or becomes incapacilaled, Ieeping in mind llal lle
Crovn Irince couId laIe Iong lime before earning lis faller's respecl and poIilicaI
cIoul.
1
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Key ratios 2009
GDP/capita ($) 3640
GDP (change) -6%
Inflation -1%
Curr. Account balance/GDP 3%
Reserves/imports (months) 8
Budget balance/GDP -5%
Government debt/GDP 28%
Graph: The risk profile of Thailand is much in line with
the average emerging market country. Event risk, though,
is clearly higher and has grown from our estimate in 2008
due to renewed political turmoil and large demonstrations
which blokaded the airport.
ExternaI ratings:
Iilcl: BBB+/NLG
S&I: BBB+/NLG
Peers:
BraziI
Russia
India
0
2
4
6
8
10
12
Resilience
Liquidity
Information
Absence of event
risk
Macro balance
Thailand Average EM Brazil
How to read the chart?
Moving out from the
center reduces risk.
 

1
For a more detailed analysis of Thailand’s political system under a constitutional monarchy,
please refer to our previous report on Thailand of April 2008 at www.seb.se/mb.
4

SEB Merchant Banking Country Risk Analysis March 17, 2009
 
Key data: 2003 2008 2009 2004 2005 2006 2007 2010
GDP (mill.US$) 142 863 161 376 176 340 207 245 246 233 273 622 235 621 254 495
GDP/capita (US$) 2300 2579 2799 3267 3854 4254 3640 3908
GDP (real change) 7,1% 6,3% 4,6% 5,2% 4,9% 2,6% -5,7% 3,1%
Investments/GDP 21% 22% 23% 23% 22% 22% 22% 22%
Budget balance/GDP 0% 0% -1% 1% -2% -1% -5% -5%
Govt debt/GDP 28% 27% 26% 25% 24% 24% 28% 31%
CPI inflation (%) 0,0% 2,7% 4,5% 4,7% 2,2% 5,5% -1,2% 3,8%
Money demand (%) 0,0% 3,1% 0,8% 5,1% 0,1% -6,0% -1,6% 6,7%
Stock prices (yearly avg.) 482 664 692 720 767 688 486 812
Interest rates 1,5% 1,4% 2,7% 4,8% 3,8% 3,4% 1,2% 2,0%
Exch. Rate ($) 41,48 40,22 40,22 37,88 34,52 33,31 36,03 35,71
Trade/GDP (%) 107% 117% 129% 123% 117% 128% 113% 135%
Oil price (Brent) $29 $38 $54 $65 $73 $98 $45 $59
Millions US $
Export of goods 78 105 94 941 109 361 127 940 150 049 175 297 139 200 176 611
Imports of goods 74 346 93 481 117 617 126 948 138 478 175 061 126 737 166 263
Other: 1 025 1 307 614 1 323 2 479 -415 -5 617 -2 645
Current account 4 784 2 767 -7 642 2 315 14 050 -179 6 846 7 703
(% of GDP) 3,3% 1,7% -4,3% 1,1% 5,7% -0,1% 2,9% 3,0%
FDI 4 608 5 783 7 554 7 971 7 342 4 473 5 125 5 403
Loan repayments -12 962 -10 795 -16 472 -12 743 -13 473 -15 438 -16 199 -16 708
Net other capital flows 6 539 7 468 20 920 12 828 9 297 37 089 4 109 11 050
Balance of payments 2 970 5 223 4 360 10 371 17 216 25 946 -119 7 449
Reserves (yearly avg.) 38 902 44 125 48 485 58 855 76 072 102 018 101 898 109 347
Total debt (yearly avg.) 54 638 51 481 51 367 53 668 60 050 65 078 67 040 68 346
o/w short term debt 11 317 11 289 14 317 17 138 20 205 23 018 24 022 24 988
Source: OEF (Oxford Economic Forecasting) and SEB estimates.
Rating history

Fitch (eoy) BBB- BBB BBB BBB+ BBB+ BBB+
S&P (eoy) BBB- BBB BBB BBB+ BBB+ BBB+
Type of government:
Next elections December 2011
Other:
Latest PC deal None
Recent IMF programs Stand-by 1997

Thai bath/US$
Exchange rate
Source: Reuters EcoWin
1998 2001 2004
20
30
40
50
60
(50 index)
Stock Market
Source: Reuters EcoWin
700
1998 2000 2002 2004 2006
600
500
400
300
200
100
2008
Thailand, Consumer Prices, Total, Index,
2007=100
ar 12 months
Source: Reuters EcoWin
2004 2005 2006 2007 2008
P
e
r
c
e
n
t
-1
1
3
5
7
9
Interest rates
Treasury Bills, Bid, 3 Month,
Policy Rates, Lending Facility
Source: Reuters EcoWin
2008 2009
P
e
r
c
e
n
t
1,0
1,5
2,0
2,5
3,0
3,5
4,0
4,5
5