SINGAPORE – Thailand's unexpected overnight military coup rattled Asian financial markets Wednesday and pressured the Thai baht and other regional currencies, though its economic repercussions remained unclear.
The news prompted Fitch Ratings to say it was considering lowering the credit rating of the country's sovereign debt and seven major Thai banks. Standard & Poor's Ratings Services said it was putting six major Thai companies, including Thai Oil Public Co., on negative watch.
But some analysts predicted that the coup's impact may be limited — and possibly even help end Thailand's political crisis, which has dragged on for months.
"We think overnight developments in Thailand probably set up a net reduction in political uncertainty and could enable a speedier resumption of decisive governance," Michael Kurtz, a regional economist for Bear Stearns, said in a report issued Wednesday.
In the country's first coup in 15 years, Thai Army chief Gen. Sondhi Boonyaratklin led a bloodless, well-orchestrated overthrow while Prime Minister Thaksin Shinawatra was attending the U.N. General Assembly in New York.
Sondhi told a news conference that he would act as a prime minister until a new leader is named and a new, temporary constitution enacted. A general election will be held by October 2007, he said.
The International Monetary Fund, which bailed Thailand and some of its neighbors out of a financial crisis in the late 1990s, was closely watching the situation but believed the region would be little affected, said the IMF's chief, Rodrigo de Rato.
"Thailand's economy is fundamentally strong," de Rato said.
Although Bangkok was calm, regional financial markets were roiled, and analysts said the Thai currency was likely to remain under pressure until the political chaos ends.
The baht weakened to 37.67 baht to the U.S. dollar by Wednesday afternoon in Asia, compared with 37.28 late Tuesday and a New York high of 37.95 baht. The Singapore dollar, Malaysian ringgit and Philippine peso also got hit.
Thailand's financial markets were closed after the coup leaders declared a holiday and put the country under martial law.
Worries about the coup contributed to declines on Wall Street Tuesday as investors recalled how a plunge in the Thai baht in 1997 triggered a crisis in emerging markets in Asia and around the world.
In Japan, stocks fell to their lowest in six weeks, but the yen gained against the dollar. Markets in the Philippines, South Korea and Singapore also dropped.
Thailand has been under a caretaker government since Thaksin dissolved the parliament in February. The results of snap polls in April were annulled due to irregularities.
Meanwhile, violence-wracked southern Thailand, seat of a two-year Muslim insurgency, has seen bombings and arson attacks, including explosions in the city of Hat Yai that killed four people Saturday, including a Canadian teacher.
The uncertainties have weakened investor confidence, with economic growth slowing to 4.9 percent in April-June from 6 percent in the first quarter. The economy grew 4.5 percent in 2005, only gradually recovering from the impact of the devastating Indian Ocean tsunami, bird flu concerns and a drought.
The Asian Development Bank recently cut its 2006 growth forecast for Thailand to 4 percent, citing political uncertainty, slowing investment growth and weakening consumer confidence due to high oil prices and inflation.
"The best case scenario is there is a quick resolution after the coup and an effective government is put in place," said Fitch's Hong Kong-based head of Asian sovereign ratings James McCormack.
The economy will be helped by strong exports, economists say, though Thailand recorded a current account deficit in 2005 due to surging oil prices.
Marshall Gittler, chief Asian Strategist with Deutsche Bank's private wealth management arm in Singapore, said the coup won't have a lasting impact on the rest of the region.
"This is purely a domestic event," Gittler said. "Thailand faced significant uncertainty in the political sphere without the coup."