There is certainly relief that the disastrous period of military rule has come to an end. ôAlmost any democratically elected government would be better than the military,ö says George Huebsch, head of research with Kim Eng Securities.
But for some weeks after the election on December 23 there was concern that the coup leaders would try and prevent the winning PeopleÆs Power Party (PPP) from forming a government, because of its ties to Thaksin Shinawatra, the deposed prime minister. Its membership comprises many former members of ThaksinÆs Thai Rak Thai (TRT) party, which was dissolved by the military in early 2007, and he is rumoured to be financing it.
ôI think if they had tried to annul the PPP result, there would have been trouble. The size of the PPPÆs victory has shown the military that the coup was a total failure. The military thought it could sway political opinions in the way it did 20 years ago. The mindset of these people is still back in the 1970s. TheyÆre now having to admit that they were wrong,ö says Chris Baker, a prominent author and commentator on Thai politics and economics, who has been based in Bangkok for many years.
The outcome of the election was a huge slap in the face for the military. Having staged the coup because, among other reasons, it felt that Thaksin had become too powerful, it then spent the next 15 months looking for ways to destroy him politically but have so far been unable to come up with a smoking gun.
Fears about whether the military would seek to disband the PPP only began to ease in the weeks before the new parliament was due to meet on January 23. The army backed off and so averted what could have been a nasty crisis and began to negotiate with the politicians, while the courts and the election commission likewise stepped away from destroying the PPP.
Observers say that the path for these negotiations was eased with the return of ThaksinÆs wife Potjaman Shinawatra to both face charges of corruption while adding ThaksinÆs voice to the negotiations between the politician and the military in an effort to work out a compromise. Thaksin is expected to return to Thailand in the spring to face corruption charges.
The two charges against him, one for asset concealment and another related to the purchase of land from the Bank of Thailand, are serious and could potentially land him in jail. Few think this will happen as, given his widespread popularity, the move could trigger social unrest. But it remains a possibility and a future potential flashpoint for another crisis. But at the same time his return could mark the start of his political rehabilitation.
ôItÆs too hard to say how events will turn out at the moment. But one scenario is that in time Thaksin will be back,ö says Baker.
Although there is relief at the end of military rule, there is also uncertainty. The PPP victory does not mean Thailand is poised on the threshold of a democratic golden age.
While the military seized power on the pretext of saving ThailandÆs democracy, the irony is that it has made it worse. It drafted a new constitution during 2007 that made it difficult to form large parties such as ThaksinsÆs TRT and encouraged the creation of more, but relatively small, parties.
As a result, the PPP is the dominant party but has to rely on minority parties for it to maintain a majority in parliament and to form a government. The upshot is that the new government is a throwback to the money politics of the late 1980s and Æ90s û an era when many of the leading politicians likely to figure in the new government û Samak Sundaravej and Banharn Silipa- Archa û were significant players. It was a period popularly known as ôbuffet politicsö when the politicians could help themselves to the spoils of office.
ôThese people make Thaksin look good,ö says one stockbroker.
Baker adds that having these characters in the government is all part of ThaksinÆs plan to portray himself in a favourable light.
ôThere is no doubt, heÆs a clever politician,ö he notes.
During the Æ80s and Æ90s Thai governments were weak in that no one party ever secured an absolute majority and the anchor party had to pay for the support of minority parties to maintain a majority. This was either in cash or by offering parties a quota of potentially lucrative posts in the government. Alliances shifted rapidly, producing weak governments. The system of government in that era was described by Ammar Siamwalla, a prominent Thai economist, as one of ôcompetitive kleptocracyö.
The system was tolerated by the Thai establishment û which included the royal family, the bureaucracy and the military û because it enabled them to control the elected politicians. While governments came and went, continuity was maintained by the bureaucracy.
However, these arrangements were threatened when Thaksin walked on the scene in 2001. He was like no other Thai politician. Rich, and with a well-organised party machine, his TRT party was the first to secure an absolute majority in parliament. He used this huge parliamentary majority, his rivals say, to undermine the elaborate system of constitutional checks and balances that were designed to counter the money politics that had corrupted Thai public life in the decade preceding the Asian financial crisis.
Another reason the military wanted to block the creation of strong political parties and why they feared Thaksin was because he wanted to change the country very quickly û to make it more openly capitalist, thereby driving economic development. The Thai establishment was alarmed at this.
ôThey were very frightened by this idea of rapid change partly because it would sideline them and partly because many of them genuinely feared that that such rapid change would create social disorder,ö says Baker.
So it was a mixture of self-interest and what the establishment perceived to be as the public interest that lead to the coup. In addition, there was concern over the way that Thaksin used his political power to swell the value of his companies. This form of enrichment differed from the traditional political practice of taking kickbacks for awarding a contract for military hardware, for example. It is worth noting that Shin Corp, which Thaksin sold to the Singapore government investment company, Temasek Holdings, at the height of his powers, has fallen to about half its value since he was toppled.
The militaryÆs obsession with undermining ThaksinÆs political power may have been what caused it to stumble economically. That government never really recovered from the introduction of capital controls on funds brought into the country, a major policy blunder that occurred shortly after it seized power. Although it subsequently rolled back most of these measures nobody forgot that the stock market fell 15% the next day, on December 19, 2006. Sentiment was also hurt by government meddling with the Foreign Business Act, which had been in place for many years. The new government made it more difficult for foreigners to own businesses in Thailand and buy property.
Business was concerned by an apparent lack of policy direction and this held back investment in some areas. Vietnam surpassed Thailand as a destination for foreign direct investment pulling in $20 billion compared with ThailandÆs $15 billion.
But despite these setbacks ThailandÆs economic growth averaged about 4.5% for the year, compared with more than 6% for other economies in the region. Foreign investment continued though at a more subdued rate than previously. The automobile industry remains solid with significant new investments from Ford, Mazda and Honda. Despite the strengthening baht, exports remained strong throughout the year.
ôThe numbers got better as the year progressed,ö says Kim EngÆs Huebsch.
The incoming PPP government has said it will get rid of the remaining capital controls, and introduce measures to accelerate the economy. Under the military, a number of infrastructure projects were held back. A new budget could be passed with this new government. And that could kick-off a new investment cycle that could boost domestic consumption. But stockbrokers CLSA warn that rising oil prices could significantly dampen this scenario.
The stock market in 2007 rose 24% in local currency terms and 35% in US dollar terms, though it was outshone by other markets such as MalaysiaÆs 31% and 40% respective increases.
ôThe market is looking very cheap with most analysts looking at 18-20% earnings per share growth. If this is true then Thailand is one of the most undervalued markets in Asia,ö says a leading Bangkok stockbroker.
But, he adds: ôWeÆve been here before and something always seems to happen to dent the earnings outlook and depress the market.ö
Nevertheless there is considerably more optimism around in the business community compared with same period last year.
But buyer beware, as a Bangkok-based analyst concludes: ôThings are never as good as they seem in Thailand nor are they as bad.ö