In 2013, the government of Thailand was suffering large losses on a rice subsidy program introduced to raise the incomes of rice farmers. An article in the Wall Street Journal reported that: "Moody's Investors Service on Monday warned that losses from the subsidy could threaten Thailand's stable Baa1 rating."
a. What is Moody's top bond rating? Why might Thailand not have received this rating even before the Thai government began to suffer large losses on the rice subsidy program?
b. If Moody's decides to downgrade Thailand's debt rating, what will be the likely result for the interest rate the Thai government will have to pay when it sells bonds? Briefly explain. Source: James Hookway and Sameer Mohindru, "Thailand's Credibility Risks Beating over Rice Dispute," Wall Street Journal, June 7, 2013.