Three imminent crises that could shape political risk in Thailand
May 26, 2016
Thailand’s significant economic potential remains appealing to many investors. But recent events continue to highlight the chronic instability and political division that have haunted Thailand’s modern history and undermined its development.
This article assesses the general evolution of political risk in Thailand under the junta and analyzes the three looming flashpoints that could lead to deteriorating stability and rising discontent in “the land of smiles.”
General trends in political risk in Thailand
The two key political risks brought about by the coup in Thailand are the potential for renewed unrest and the inefficient management of the Thai economy.
While the coup initially brought about a return to order after the chaos surrounding the judicial removal of Prime Minister Yingluck Shinawatra, the junta’s draconian measures while in power are driving up the risk of further unrest. The junta, in its attempt to solidify control and stability, has clamped down hard on any criticism of the junta, the King, or the draft constitution.
In particular, the junta has targeted groups, activists, and politicians sympathetic toward Yingluck (and her influential and popular brother Thaksin). The arrest of the “Facebook 8” in particular has garnered international attention. The more the junta cracks down on these groups, however, the more likely they are to create martyrs and forment further discontent.
The junta has shown little interest in redressing the widespread grievances and political division that have plagued Thailand for years. Tensions between Thaksin supporters – including Thailand’s rural poor, the red shirt movement, and populist politicians – and Thailand’s “establishment” – including the urban middle class, the yellow shirt movement, royalists, and the junta leadership – still simmer beneath the surface. The Red Shirts have so far complied with the junta’s demands to suspend their political activity. The longer the junta remains in power, however, the more likely the Red Shirts will be to take to the streets.
The junta’s ability to create sound macroeconomic policy is also a concern for investors. Again, the coup initially introduced a degree of stability and reduced uncertainty. Markets and consumers responded positively, although tourism, a key component of the Thai economy, declined.
But as time has progressed, the problems of military rule have become increasingly clear. Thailand faces slow GDP growth, a declining Consumer Price Index, and struggling exports. Notably, the NESDB recently downgraded its estimates for 2016 GDP growth from 3.0-4.0% to 2.8-3.8%.
The junta has bolstered government spending and introduced reforms to state owned enterprises to try to offset these challenges, but concerns remain about its competence as a steward of the Thai economy. Ultimately, the junta is far more preoccupied with the immediate challenge of solidifying its institutional hold on power than it is with the major structural economic reforms and infrastructure investment needed for stronger growth.
In addition to these general trends in political risk, three potential three major crises could lurk in the not-too-distant future for the Thai economy: The conviction of PM Yingluck, the referendum on the draft constitution, and the death of the Thailand’s ailing, aging monarch.
Yingluck is currently being tried for her mismanagement of a major rice subsidy program. Given the junta’s determination to root out the influence of the Shinawatra siblings in Thai politics and its heavy-handed treatment of dissidents, there is a significant chance that Yingluck will be convicted and subsequently imprisoned.
Imprisonment will almost certainly cement broad political and social divisions between the “establishment” and Thaksin supporters, and could trigger a resurgence of Red Shirt protests. Given the current state of martial law, these protests would likely be violently suppressed, bringing a raft of new risks to investors and businesses operating in Thailand.
The August referendum
After pushing back a planned referendum repeatedly, the junta has decided to hold a vote on its proposeddraft constitution in August. Although the Red Shirts have pledged to oppose the draft constitution, the junta seems to have the upper hand in the upcoming referendum. The bulk of Thailand is both uninformed and undecided about the draft constitution and the junta will be actively promoting the draft through propaganda and public outreach. The junta is also actively suppressing any criticism of the constitution, and the Red Shirts are still unable to conduct political activities – like demonstrations against the constitution – under martial law.
If the Red Shirts beat the odds and the referendum fails, the military will likely push back the planned 2017 elections and retain direct control over the government. The longer the junta remains in direct control of the country, however, the more likely unrest will break out.
A successful referendum, however, would lead to a transition away from direct military rule in 2017. Tensions might subside in the near term, but the possible return of Thaksin supporters to power in 2017 elections coupled with the draft constitutions’ provision for a military-dominated senate could lead to policy deadlock.
The death of the king
The last potential crisis Thailand is likely to face in the coming years is the death of King Rama IX. The King is old and in poor health, but the monarchy is at the center not only of the current junta’s legitimacy but also the political order more broadly. His death, and the ensuing succession, will have a dramatic impact on the political landscape, more so than Yingluck’s fate or the draft constitution.
Battle lines are already forming. Thaksin has been maneuvering in an attempt to build a strong relationship with the Crown Prince Vajiralongkorn, the presumptive heir but also a problem child abhorred by the military and Thailand’s establishment. Within the establishment camp, some are considering various avenues to bring Crown Princess Sirindhorn to power in the event of the King’s death. Ultimately, succession could spark a major upheaval as the two camps struggle for their preferred candidate.
Investors and businesses with a stake in Thailand should keep a close eye on how these three critical flashpoints play out.