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2 RISKY BUSINESS Clouds on Thailand's
horizon By Jephraim P Gundzik
commander, in October sought to
extend an olive branch to insurgents in southern
Thailand. Rather than embracing the gesture, as
many security analysts expected, Muslim insurgents
instead stepped up their attacks.
In
December alone, insurgents carried out an
estimated 180 attacks that killed or wounded 170
civilians. And insurgent attacks have become much
more frequent and violent during the
first
three months of 2007, causing security officials
to reconsider their more conciliatory approach.
Thai military strategy, which is remarkably
similar to US military strategy in Iraq, has made
it impossible to subdue the insurgency.
Thailand's military has organized
paramilitary units in southern Thailand composed
of locals, a strategy also used by the US in Iraq.
Ironically, as in Iraq, insurgents can easily
infiltrate these units, giving them the
intelligence upper hand. And also as in Iraq,
insurgents in southern Thailand have gained
increasing control over large amounts of
territory.
Finally, and perhaps most
alarming, Thailand's separatist insurgency has
taken on an increasingly sectarian tone, with
Muslims violently attacking Buddhists. All
indications suggest that the insurgency will
continue to intensify in 2007, with the potential
for it spreading beyond the country's three
southernmost provinces of Pattani, Narathiwat and
Yala to neighboring Songkhla province and perhaps
further up the southern coast to areas that rely
on international tourism.
Political and
social instability in Bangkok could also intensify
in coming months. The ruling Council for National
Security (CNS) junta has promised to hold new
democratic elections by the end of this year.
First it must draft a new constitution, which is
to be unveiled in draft form this month and put up
to a national referendum by August.
When
the new constitution is drafted, it will likely
contain provisions that institutionalize a role
for the military in politics and hence weaken the
political-party system. It will also likely
undermine the political power of rural Thais, to
avoid a repeat of the populist phenomenon that
propelled Thaksin's power. For instance, the CNS
appears intent on directly appointing its people
to deputy-governor positions.
It is
difficult to understand how a democratically
elected government will be able to function with
the military so prominently behind the scenes.
Expanding military involvement in Thai politics
could lead to prolonged periods of weak
governance, punctuated by the type of
administrative indecision that has characterized
the current appointed military-led government.
Significantly, after enjoying high
approval ratings directly after last year's coup,
the CNS has in recent months seen its popularity
in Bangkok dramatically erode. That shifting
sentiment has been brought on by policies that
have eroded foreign investor confidence, including
the December decision to impose capital controls
on foreign portfolio, currency and bond
transactions.
The plummeting popularity of
the military government could eventually manifest
itself in new street demonstrations, similar
perhaps to the ones that contributed to Thaksin's
unceremonious demise. Most recent polls show that
Bangkok's middle class does not support recent
protests led by fringe anti-coup groups. But
several factors could trigger new unrest,
including provisions in the new draft constitution
that tighten the military's grip on politics and
weaken the rural electorate's autonomy, and delays
to planned elections.
These factors are
already eroding consumer expectations, further
weakening domestic demand. And unlike in 2006,
this weakness will likely not be offset by
stronger external demand and accelerating growth
in agricultural production. With the United
States' housing market still in freefall and
inflation rising, the US economy could easily
slide into recession during the second half of
2007, dragging export-dependent economies such as
Thailand down with it.
Moreover, further
devaluation of the US dollar could lead to the
depreciation rather than appreciation of the Thai
baht, as investors are forced to unwind their yen
carry trades. That means that in the months ahead
both Thai asset prices and the military-led
government could tumble in unison.
Jephraim P Gundzik is president
of Condor Advisers. Condor Advisers provides
investment risk analysis to individuals and
institutions worldwide. Visit
www.condoradvisers.com for more information.
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