MUMBAI (Thomson Financial) - Moody's Investors Service has said Thailand's 'Baa1' foreign and local currency government bond ratings with a stable outlook are supported by a sustainable fiscal position and a macroeconomic performance that has so far withstood political uncertainties arising from the September 2006 military coup.

The 'Baa1' government bond rating, along with the assessment of a moderate risk of a payments moratorium in the event of a government default, serves as the basis for Thailand's 'A3' foreign currency country ceiling for bonds, Moody's said in its annual report on the country.

The ratings agency said it anticipates that the current junta and future, post-election government will maintain prudent policies and sustain Thailand's relatively good credit fundamentals.

The shift in the government budget into surplus between 2003 and 2006 reflects a policy capability for fiscal prudence, Moody's said.

Though a small deficit is likely in 2007, social welfare spending and planned public infrastructure initiatives are not likely to destabilize the fiscal position over the medium term, the ratings agency said.

By revising the Foreign Business Act, which imposes new constraints on foreign investment in some sectors, the military government has given mixed signals on the role of foreign participation in the economy, Moody's said.

However, Thailand's much improved external payments position and an ample domestic savings rate provide some cushion to the economy from any diminishing of long-term, productive foreign investment inflows or other external shocks, the ratings agency said.

TFN.newsdesk@thomson.com

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