Thai PM declares state of emergency

After three months of anti-government protests the move was not unexpected, but the baht falls sharply nevertheless.
One protestor was shot dead and 45 injured Tuesday, prompting ThailandÆs prime minister, Samak Sundaravej, to declare a state of emergency yesterday. The declaration came after three months of protests by anti-government demonstrators demanding the prime ministerÆs resignation.

Pro-government and anti-government protestors clashed overnight despite police intervention near the prime ministerÆs official compound. Pro-government demonstrators were demanding the release of the compound after more than a week-long sit-in by demonstrators from the anti-government PeopleÆs Alliance for Democracy (PAD).

While not unexpected, the state of emergency did put another dent in the investor confidence and media reports say the countryÆs central bank was forced to intervene to support the baht which fell to its lowest level against the dollar in more than a year. On the Stock Exchange of Thailand (SET), the benchmark index closed down 2.3%. Oil producer PTT, which is the largest stock in the SET index fell 2.3% while ThailandÆs largest lender, Bangkok Bank, shed 3.4%. In the first seven months of the year, foreign investors on the SET have sold a net Bt86.2 billion ($2.5 billion) worth of stocks, pushing the index 23% lower as of yesterday.

MoodyÆs Investors Services and Standard & PoorÆs maintained their sovereign credit ratings for Thailand. However, both warned of future downgrades if the political situation continues and S&P said events in the past two weeks have ôraised the probability of a negative action on the sovereign credit ratings on Thailand.ö The country is rated BBB+ by S&P and Baa1 by MoodyÆs.

ôEscalating political uncertainties û in view of the stand-off between protestors and the country's coalition government û do pose a threat to not only the democratically elected government of Prime Minister Samak Sundaravej, but also to long-term economic stability," says Thomas Byrne, Singapore-based senior vice-president in Moody's sovereign risk group.

Some observers say much of the current situation has already been priced in and note that international investors who are still invested in the Thai market are a hardy breed and well aware of the potential risks. Thus many are expected to keep their cool and monitor the development from the sidelines rather than embark on panic selling û at least for now. The baht appears to be most at risk and currency strategists say it could drift lower towards 35 to the dollar (from a low of Bt34.49 yesterday) over the next few weeks if the protests donÆt calm down.

Despite the overnight dissolution into violence, army commander general Anupong Paochinda said at a press conference that ôif the military has to get involved, it will not use forceö. The state of emergency grants general Anupong the legal use of force against demonstrators.

It seems unavoidable though that the current state of unrest and political instability will not have a negative impact on economic growth and consumer spending. Data out Monday showed that the consumer price index was up only 6.4% year-on-year in August, versus 9.2% in July and expectations of 8.7%, suggesting that domestic demand is already tapering off.

Forty-three PAD-led state-enterprise labour unions also announced that they would begin selective nationwide strikes in the water, electricity and transportation sectors on Wednesday. Provincial government offices will be the target of water and electricity cut-offs, while all Thai Airways international flights will be delayed or cancelled and 80% of Bangkok buses will be parked.

Over the weekend, PAD demonstrators successfully closed airports in Krabi and Phuket, two destinations popular with overseas visitors. MoodyÆs warns that another wave of airport shutdowns or street protests could seriously impact tourism receipts, putting into question ThailandÆs balance of payments. According to the Associated Press, both Singapore and South Korea yesterday advised their citizens against travelling to Thailand.

The Bank of Thailand currently has $102 billion in foreign exchange reserves, according to Standard & PoorÆs.

The PAD, an anti-government group lead by a five-person panel including media-mogul Sondhi Limthongkul and major general Chamlong Srimung, has accused Prime Minister SamakÆs government of being corrupt and incompetent since its election in January 2008. The PAD believes that the prime minister and his PeopleÆs Power Party are fronts for deposed former Prime Minister Thaksin Shinawatra and his dissolved Thai Rak Thai Party.

Thaksin was deposed in a military coup in September 2006. At the time he was serving as caretaker prime minister after announcing his resignation during snap elections in April 2006. The PAD was a central force in the push for snap elections in 2006.

Class issues are at the centre of the current dispute. The PAD is largely supported by middle class Bangkok residents while Prime Minister SamakÆs PeopleÆs Power Party is supported by upper class business and financial elites but claims to represent lower class and rural issues.
¬ Haymarket Media Limited. All rights reserved.
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