Thailand: Buying opportunity ... at
least for now Special
Correspondent
It was a bloodless coup that
removed Thai prime minister Thaksin Shinawatra
from power on Tuesday night. Still, figuratively
at least, a majority of fund managers appear
determined to act out the old precept of buying
before the blood has dried in the streets.
According to Merrill Lynch, "Investors should
be encouraged by the fact that the uncertainty
surrounding Thaksin's tenure has been removed."
Hence "the only sensible response" is to be
overweight on Thai stocks.
Templeton Asset Management said, "If
prices fall as a result of the current political
situation, we may add ... to our holdings." CLSA,
Kim Eng Securities, Baring Asset Management and
various smaller funds were on the same line.
Citigroup represented one of the few exceptions to
the positive outlook and said it remained negative
on Thai stocks.
Thursday trading on the
Stock Exchange of Thailand (SET) followed the
pattern indicated by the majority fund managers'
advice. The SET index dropped by more than 4%
within minutes after the market opened, but
quickly recovered much of the lost ground to close
down 9.99 points at 694.81.
Thailand's currency, the baht, lost nearly 2% against
the US dollar immediately after the coup, but
as of Thursday evening local time it had
recovered more than half of the initial losses. The
dollar was trading at 37.5650 baht, down from 37.7400 baht on
Wednesday.
The by now royally endorsed
military takeover indeed has the potential of
restoring a goodly measure of stability to the
Thai political scene. On the assumption that a
respected technocrat - preferably perhaps with
close links to the palace - is installed as
civilian caretaker prime minister within two weeks
as promised by coup leader General Sonthi
Boonyaratklin, both domestic and foreign investors
are likely to regain confidence in Thai markets
and the economy.
The country's economic
fundamentals, including its fiscal and foreign
debt position, have remained sound throughout the
period of political turmoil since late last year.
With turmoil and uncertainty removed and a new
government in place capable of acting to disburse
public investment funds and address pressing
regulatory issues, full-year economic growth
should still come in at 4.5% or above.
But
serious questions pertain to Thailand's
longer-term economic and policy outlook. In his
first address to the public, Sonthi indicated that
new elections might be held about a year from now
after drafting and ratification of a new
constitution.
After a year's respite under
technocratic rule, what will new elections bring?
The coupmakers have made no economic-policy
pronouncements, merely issuing the obligatory
denunciations of the previous regime's alleged
corrupt practices. The caretaker government is
unlikely to pursue any far-reaching new
initiatives. Beyond that, what are we to expect?
The People's Alliance for Democracy (PAD),
which spearheaded the protest demonstrations
against Thaksin and grew out of publisher Sondhi
Limthongkul's political talk show Thailand
Weekly, had a political agenda, but no
economic one. Nonetheless, it brought together
opposition figures from different social strata,
interest groups, non-governmental organizations,
and so on, with definite political-economic points
of view.
Core PAD leader Somsak Kosaisuk
is a state-enterprise labor leader who has been in
the forefront of the fight against the
privatization of the Electricity Generating
Authority of Thailand (EGAT). Another core PAD
leader, Somkiat Pongpaiboon, has called himself a
campaigner against "Thaksinomics" and counterposed
his own poverty-alleviation programs to Thaksin's
allegedly ineffective and fraudulent "populist"
policies to cope with rural poverty.
PAD
leaders and spokespeople across the board have
accused Thaksin of selling Thai strategic assets
to foreigners to enrich himself and his family
(the US$1.9 billion tax-free sale of Shin Corp to
Singapore's Temasek) and have played the
"nationalist" economic card.
The PAD
welcomed campaigners against globalization and
against an allegedly inequitable US-Thailand
free-trade agreement. Leaders of the main
opposition Democrat Party have chimed in at
various times with related themes. In addition,
given that the PAD sees itself as a staunch
defender of the monarchy, elements of His Majesty
King Bhumipol Adulyadej's concept of "Sufficiency
Economy" calling for "moderation in all human
endeavors, reining in expectations to within the
bounds of self-support and self-reliance", have
been propounded by PAD leaders.
This array
of political-economic views, of course, does not
amount to a coherent economic program; its
elements are, in effect, little more than the
negatives of Thaksin's principal economic
policies. It was Thaksin's and his advisers'
strategic economic aim to reduce Thailand's
dependency on low-cost-labor manufacturing for
export and to stimulate domestic demand to achieve
self-sustaining economic expansion.
For
this purpose, he saw it as necessary to foster
entrepreneurial activity in the country's rural
areas, where most of the population still lives
and potential new demand could most effectively be
unlocked. He also aimed gradually to privatize
most state enterprises and target the proceeds of
privatization for the development of large-scale
infrastructure, both in the Bangkok metropolitan
region and beyond, and to provide the rural north
and northeast access to a modern transportation
system.
Most of Thaksin's larger project
proposals and undertakings will now be scrutinized
by the incoming caretaker government.
Implementation will be limited to projects already
well under way. It will fall to the next elected
government to define new economic priorities and
approaches.
But it would appear to be a
safe bet that the basic economic policy directions
initiated by Thaksin over five years can only be
substantially reversed or altered at the expense
of economic stagnation, if not retrogression.
Therein lie the new uncertainties beyond the next
12 months of extra-parliamentary rule.
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