Thai Baht May Fall Further 3.3% on Politics, State Street Says

By Shanthy Nambiar

Aug. 27 (Bloomberg) -- Thailand's baht may slide more than 3 percent by year-end as attempts to remove Prime Minister Samak Sundaravej and ban his ruling party prompt global funds to pull money from the country, according to State Street Global Markets.

The currency dropped 5.5 percent in the past three months, the worst performance among Asia's 10 most-active currencies excluding the yen, as anti-government protests gathered steam. Overseas investors' sales of Thai stocks exceed their purchases this year by more than $3 billion and the benchmark SET Index has slumped 22 percent.

``One black mark is foreign investor outflows,'' State Street's Hong Kong-based strategist Dwyfor Evans wrote in an e- mailed note today. ``An amalgam of political risk, real money cross-border equity outflows and potential unwinding of Thai baht long positions by institutional investors implies further risks of downward pressure for the baht.''

Evans predicts the baht, which recently traded at 34.13 per dollar in Bangkok, will decline to 35.30 per dollar by the end of 2008. The median estimate of 16 analysts surveyed by Bloomberg News is for a year-end level of 33.8.

Thailand's Election Commission will announce Sept. 2 whether it will seek the dissolution of Samak's People Power Party, formed by supporters of former Prime Minister Thaksin Shinawatra, for vote buying in December elections. The Supreme Court on July 8 convicted senior party executive Yongyuth Tiyapairath of the offence and this month issued arrest warrants for Thaksin and his wife after they skipped bail and fled to the U.K. to avoid corruption charges.

Government Offices Stormed

The Thai currency yesterday touched an 11-month low of 34.29 per dollar as supporters of the People's Alliance for Democracy, which organized rallies that led to Thaksin's ouster in a September 2006 coup, stormed Samak's office and several ministries. Riot police surrounded the premier's compound today and Samak said he won't resign.

The political woes are preventing Samak, who became prime minister in January, from following through on promises to spend about $50 billion in the next four years on infrastructure projects and ease restrictions on foreign investment to help the economy. Growth in Southeast Asia's second-largest economy slowed to 5.3 percent in the second quarter, easing for the first time in more than a year, as spending slumped at home.

To contact the reporter on this story: Shanthy Nambiar in Bangkok at snambiar1@bloomberg.net