Thai Instability May Hurt Confidence, Tarisa Says

By Suttinee Yuvejwattana and Shanthy Nambiar

Sept. 3 (Bloomberg) -- Thailand's central bank said political unrest may further erode confidence after a state of emergency failed to disperse protesters. The baht held near the lowest in more than a year and stocks slumped.

``Political uncertainties may affect confidence and local spending,'' said Governor Tarisa Watanagase in Bangkok. ``The economy is resilient. The impact may be short term if we can solve the situation quickly.''

Thailand's Army Chief said he'll refrain from using force to disperse 5,000 members of the People's Alliance for Democracy camped for eight days at Government House demanding Prime Minister Samak Sundaravej's resignation. Clashes yesterday between thousands of pro- and anti-government rivals left one dead and 43 injured, prompting the premier to impose an emergency decree.

The SET Index of stocks fell 1 percent, set for its lowest close since Jan. 23, 2007, after sliding 24 percent this year. Investors should avoid stocks in the nation as political turmoil intensifies, Credit Suisse Group said today. The baht slumped to 34.54 yesterday, the weakest level since Aug. 23, 2007. The central bank will buy the currency to ``curb volatility,'' Tarisa said.

Vote Buying

The Election Commission said yesterday Samak's ruling People Power Party should be dissolved for vote buying in the December national elections. The clashes over Samak and the risk his ruling party may be banned prompted global funds to pull $3.1 billion from the stock market this year, according to data compiled by Bloomberg.

Thailand's economic growth slowed for the first time in more than a year in the second quarter as higher exports of rice and rubber failed to offset a decline in domestic spending. The central bank expects growth to ease further in the second half as protests against Samak's seven-month-old government erode confidence and keep investors away.

Thailand's companies face almost impossible hurdles in borrowing overseas because of the nation's political uncertainty, Pongpanu Svetarundra, director general of the public debt management office, said today.

The government will seek funds from lenders including the World Bank and Asian Development Bank because the cost of borrowing in international credit markets is too high, he said.

Intervention

Protesters backing the People's Alliance for Democracy, a group seeking Samak's resignation, have ignored the state of emergency, continuing to occupy the prime minister's office compound. Food vendors, portable medical stands and souvenir shops have proliferated within the Government House.

Thailand's Army Chief Anupong Paojinda said his main objective is to keep pro- and anti-government sides apart after clashes resulted in three people being shot. The decree, which bans gatherings of more than five people, will be ``revoked in the next few days,'' Samak said yesterday.

The baht fell 2.1 percent in the past month against the U.S. dollar, prompting central bank officials worried about rising prices to step-up support of the baht.

``We need to curb volatility in the market, so people can do business,'' Governor Tarisa said. The central bank will ``act if necessary'' to support the baht, she said.

The Bank of Thailand supported the baht yesterday, Deputy Governor Atchana Waiquamdee said in Bangkok yesterday, without saying how much the central bank spent.

Policy makers last week raised the one-day bond repurchase rate to 3.75 percent for a second straight month, saying the level was adequate to temper inflation and still support economic growth.

Schools Closed

Apart from the closure of more than 400 schools, life in Bangkok proceeded as normal today with no enhanced police presence. The clashes were confined to a small section of the sprawling capital of 8.1 million people.

Growth in Southeast Asia's second-largest economy slowed to 5.3 percent in the second quarter, from 6.1 percent in the first three months of the year. Spending by local consumers and companies hasn't been that strong. An index of consumer confidence fell from April through June amid surging oil costs, protests and court cases against Samak.

The inflation rate fell to 6.4 percent in August from a 9.2 percent, the fastest pace in a decade, the previous month.

``We need to monitor whether slowing inflation is a trend,'' Tarisa said. ``Inflation concerns have eased but the risk is still there.''

To contact the reporter on this story: Shanthy Nambiar in Bangkok at snambiar1@bloomberg.net; Suttinee Yuvejwattana in Bangkok at suttinee1@bloomberg.net.