Thai election won’t reduce risk for investors

Investor expectations in Thailand are pinned on an election that will probably occur toward the end of 2007, 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 Thaksin—have been banned from contesting elections until 2012.

Investors have reacted favorably 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.

Hopeful investors

Then, there are those who may not care much about 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 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 Thaksin and be hopeful: They want their payday. Since early 2004, the SET Index, the country’s equity benchmark, has returned 8.5 percent annually in US dollar terms, or about double the gain from long-dated US Treasuries.

And to earn this additional 4 percent, 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 coup

The flashpoint was reached in January 2006 when Thaksin’s family sold its interest in Thai conglomerate Shin Corp. to Singapore’s Temasek Holdings Pte and paid no tax on the $1.9 billion transaction.

Amid allegations of corruption and cronyism, Thaksin’s party emerged victorious in an April 2006 election, which was supposed to reestablish 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 21.6 million pounds ($43 million) for the English soccer team Manchester City.

The new rulers have sought to limit foreign ownership of Thai businesses through an ill-conceived plan. They have also nationalized 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.

All about luck

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 Southeast Asian nation is in a state of disquiet. Three people were killed and 42 injured in nine bomb attacks that targeted New Year’s Eve revelers 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.

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, programs and personalities must fight for recognition at polling stations?

Constitutional deficit

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.  

Andy Mukherjee is a Bloomberg News columnist. The opinions expressed are his own.

THE Philippine government recently announced it is considering the nuclear option in its “energy mix” to ensure a stable source of power.

My Palace source was concerned about the recent surge of robberies. 

“People have no respect for anything anymore,” he lamented.

Wednesday last week I had this rare privilege of lunching with the stalwarts of the local journalism profession, especially the respected professionals of the print medium who have endured (and visibly aged) in the past two or three decades and are now on top of their respective heaps—including Isagani Yambot of the Philippine Daily Inquirer and Crispulo Icban Jr. of the Manila Bulletin, to name only two, who sat next to me at the State Dining Hall in Malacañang.

Investor expectations in Thailand are pinned on an election that will probably occur toward the end of 2007, after the country’s new constitution—the 18th in 75 years—is ready.

With the economy surging to unprecedented heights, President Arroyo expressed hopes for the country to finally end its dependence on the remittances from overseas Filipino workers (OFW), encouraging them to find lucrative jobs locally with the infusion of more job opportunities as foreign investors come pouring in their stake in a globalized market.

When the going gets tough, the tough get buying soccer teams.

With apologies to one of the English language’s better-known adages, this phrase aptly describes Thaksin Shinawatra. Last week, the ousted Thai prime minister took time out from his busy schedule rehabilitating his image to buy English soccer team Manchester City.

THE Association of International Shipping Lines (AISL) draws your attention to the news report (BusinessMirror June 19) entitled: “RP trading costs too high—WB.”