Thailand Under Siege – What Next For Thai Politics?

Thailand has been plagued by bouts of political uncertainty and instability since the military coup deposed then Prime Minister Thaksin Shinawatra in September 2006. The military-installed regime that subsequently came to power lost its grip on the government after the general elections in December 2007 put in power a six-party coalition government headed by Prime Minister Samak Sanjaravej.

That coalition is now in danger of falling apart. The shadow of ex-PM Thaksin has always loomed large in Thailand’s political landscape – the beleaguered Thai PM Samak led Thaksin’s political allies into a victory in the December 2007 elections, prompting fears that Thaksin could stage a comeback in Thailand’s political scene.

The political situation in Thailand seems to be deteriorating, as anti-government protests organised by the People’s Alliance for Democracy (PAD) show no signs of abating, threatening the proper functioning of Thailand’s economy. PM Samak has vowed not to step down, despite the intensifying pressure for him to do so. Sondhi Limongthul, the protest leader, told the Associated Press that “The protest had already developed into a people’s revolution”, and that he believed that “Samak is going to resign.”

PM Samak’s hold on power appears to be weakening with each passing day of the protest. Political observers generally have mixed views over whether the fragile coalition would be able to withstand this blow dealt by the large-scale anti-government protests. Thailand’s revered King Bhumibol has yet to intervene in this matter, but his intervention would be crucial, to prevent the political situation from further crippling the nation. It was reported the King granted an audience to PM Samak last Saturday, but it is unclear at this stage what the outcome of that meeting was.

What Next For Thailand?

Thailand's international image has suffered badly from the escalating political crisis. Political stability, so central to the continued development of a flourishing and vibrant economy, has been largely absent in Thailand in the post-Thaksin days. The absence of a strong government, capable of leading the nation on the path to economic recovery and stability, has only compounded the problem.

This political crisis has also exposed the divide between Thailand’s rural voters, the key supporters of Thaksin and the current government led by PM Samak, and the urban middle-to-upper class voters, which supported the ouster of Thaksin from power.

If PM Samak is eventually forced to dissolve the parliament and step down from power, there is no clear successor in sight. The opposition party, the PAD, led by Sondhi Limtongkul, does not have strong support from the rural voters, which make up the majority in Thailand.

Even if there is another round of general elections, it is likely that the People’s Power Party, led by current PM Samak, would once again be voted into power – a result that would not go down well with the PAD.

Although he has no formal political role, Thailand’s revered monarch, King Bhumibol, holds a crucial key to Thailand’s political future – his endorsement of PM Samak’s government would help PM Samak regain his foothold on the government, and calm the current political turbulence. But if the scale of the protests widens further, and key support from his allies and the military weakens, Samak may eventually be forced to resign. That would deal a blow to democracy in Thailand, and send negative signals to foreign investors.

At the moment, the political outlook for Thailand remains unclear. But this situation could change. Barring any direct intervention from the military or from the monarch King Bhumibol, if the PAD oversteps any major boundaries and the protests start to weaken in scale, that could mark a turning point in the political stalemate. This would ensure that the government led by PM Samak is able to remain in power.

Thailand – Short-term Increase in Risk Premium

The risk premium for the Thai market has increased in the short term, due to the political uncertainty plaguing the nation. The political uncertainty aside, valuations for the Thai market remain attractive. According to estimates by iFAST Financial, the Price Earnings (PE) ratio for the Thai equity market is at 9.1X and 8.4X for 2008 and 2009 respectively (as at 26 August 2008).

Investors should not panic and shun away from the Thai market due to this current crisis. Instead, it would be prudent to closely monitor the situation in Thailand, and to take a long-term view when investing in this market.

At the time of writing, the Prime Minister has declared a state of emergency in Bangkok, after the anti-government protests erupted in violence. The state of emergency gives the military the power to break up any gatherings of more than five people and any meetings “that might disturb public order”.

Any fears that the army would seize the opportunity to stage a military coup was quickly dispelled. According to a report by IHT.com, the army commander, General Anupong Paochinda, said the military would not use force, would not take sides and would not stage a coup, as it did exactly two years ago when it ousted Prime Minister Thaksin Shinawatra.

Stephanie Thng (Editor & Financial Adviser Representative) is part of the Editorial team at iFAST Financial Pte Ltd.

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