Thai election will not reduce risk for investors

Investor
expectations in Thailand are pinned on an election that will probably
occur toward the end of this year, after the country’s new Constitution
— the 18th in 75 years — is ready.

A democratically-elected prime minister will try to make up for the
three years of economic progress and wealth creation that have been
lost to political shenanigans.

This much is certain, but unimportant. The real issue isn’t policy. It’s politics.

Will Thailand, trying to make a success of yet another attempt
at democracy, be a reasonably safe emerging market for at least five
years? At this moment, the answer is: No.

The reason for this pessimism is the decision last month by a
military-appointed court to dissolve deposed Prime Minister Thaksin
Shinawatra’s Thai Rak Thai party for committing electoral fraud in an
April 2006 snap poll, which was boycotted by the opposition.

Some 111 party workers — including Mr Thaksin — have been
banned from contesting elections until 2012. Investors have reacted
favourably to this decision as though it brings some kind of closure to
a protracted episode of gross impropriety. The reality may be just the
opposite.

Dissolving a political party is easy; doing it without suppressing the interests represented by that party is tough.

And Thai Rak Thai wasn’t exactly a minnow. The most successful
political party in Thai history, it enjoyed considerable support in
towns and villages across the country.

Then, there are those who may not care much about Mr Thaksin’s
— or his party’s — fate but who would nonetheless want to see a more
stable political system, which isn’t possible without a reliable
Constitution and rule of law.

This group consists of unhappy local businessmen untouched by
the economic boom that’s benefiting most of Asia. For them, the big
risk is that Mr Thaksin’s supporters will scupper whatever chances the
new Constitution and the government have of succeeding.

It’s easy to see why overseas fund managers want to look
beyond Mr Thaksin and be hopeful: They want their payday. Since early
2004, the SET Index, the country’s equity benchmark, has returned 8.5
per cent annually in United States dollar terms, or about double the
gain from long-dated US Treasuries.

And to earn this additional 4 per cent, all of which has come
through dividends and a perverse appreciation in the Thai baht,
investors have had to live through a long nightmare.

The flashpoint was reached in January last year when Mr
Thaksin’s family sold its interest in Thai conglomerate Shin Corp to
Singapore’s Temasek Holdings and paid no tax on the US$1.9 billion
($2.9 billion) transaction.

Amid allegations of corruption and cronyism, Mr Thaksin’s
party emerged victorious in an April 2006 election, which was supposed
to re-establish the government’s legitimacy but was later annulled.

After persistent street protests, the army overthrew Thaksin’s
caretaker government in September, two months before it was to seek a
fresh mandate from the people. Since then, the deposed prime minister
has lived in exile, mostly in London, and last week agreed to pay​ฃ​21.6 million ($66.4 million) for football team Manchester City.

The new rulers have sought to limit foreign ownership of Thai
businesses through an ill-conceived plan. They have also nationalised a
television station controlled by Shin Corp.

The central bank, unable to manage a surge in the baht,
imposed capital controls in December last year and then, facing a
backlash from the markets, retracted most of the measures.

Unless this nation of 65 million people finds a leader who is
willing to accommodate dispossessed interest groups and win their
trust, the new Constitution will meet the same fate as the ones before
it. Finding such a statesman is, more than anything else, a matter of
luck.

The need for such a figure, however, is urgent.

The nation is in a state of disquiet. Three people were killed
and 42 injured in nine bomb attacks that targeted New Year’s Eve
revellers in Bangkok. Insurgency in the Muslim-dominated south of the
largely Buddhist country continues unabated. The Thai intelligentsia
has a good grasp of the risks associated with the suppression of
interest-group politics.

Mr Prawase Wasi, a medical doctor, recently floated the idea
of a forum where all political stakeholders can openly state their
vision for the new government. The plan is moving forward. But will a
private airing of differences be a substitute for a real democratic
contest where plans, programmes and personalities must fight for
recognition at polling stations?

The Thai election may end up solving nothing, until the spirit
of constitutionalism comes out of conference rooms and auditoriums and
permeates society.

It might take decades, though without it even excellent
economic policies are meaningless and the best of institutions
inherently unstable.

Once the elections are out of the way, Thailand may have no
immediate difficulty pursuing much more “market-friendly” policies
than, say, Indonesia. But Indonesia, prone as it is to bungling its
monetary policy once in a while, has of late done a far better job than
Thailand in keeping the army in the barracks. And for that reason
alone, the “blow-up” risk from the next Constitutional crisis will be
higher for Thailand.

The time for betting on a longer-term reduction in Thai political risks isn’t here yet.

—- KN Staff Reporter.

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