Saturday, July 2, 2011

Post-election scenario has investors wary

A chaotic outcome is expected as a result of tomorrow's general election in which about 35 million Thais are expected to cast their votes.

The voter turnout is likely to be no less than the 74 per cent recorded in the last poll nearly four years ago.

According to Kasikornbank's research, investors should prepare for the worst outcome because political conflicts are unlikely to fade away regardless of which major party wins this election. A new round of political rallies will happen as soon as the conflict resumes. At this stage there are at least three sensitive issues facing the country.

First, there will be a heated debate whether the new Parliament should grant amnesty to 111 and 105 former party executives currently banned from directly engaging in political activities. Fugitive ex-premier Thaksin Shinawatra is among these former politicians, and he has also been sentenced to a two-year jail-term for abuse of power. Pro-amnesty groups have suggested that such a move would represent a settlement of previous political conflicts. On the other hand, there will likely be fierce opposition from other groups to such a move, especially with regard to Thaksin's criminal cases. According to the research, it is possible there will be street protests against this plan if it is presented to the new Parliament.

Second, it is speculated that there could be extra-constitutional measures taken against the election outcome. Unless a single party wins more than 251 seats in the 500-member House, there could be military and judicial intervention. In addition, mass demonstrations will challenge any extra-constitutional move.

Third, the Thai-Cambodian conflict could also lead to mass demonstrations as the next government will have to make a crucial decision on the Preah Vihear Temple issue after Thailand expressed its intention to withdraw from the World Heritage Convention (WHC). An official withdrawal process will take about 12 months. There has already been heated debate on the pros and cons of WHC withdrawal after the caretaker Abhisit government expressed its support for the move.

The move followed Cambodia's push for endorsement of its management plan for the 4.9 square-kilometre area surrounding the Hindu temple on the border. It is claimed that endorsement of this Cambodian plan would compromise Thailand's sovereignty over its territory. In other words, this will be yet another hot potato for the next government, as it will have to decide whether it is going to resume negotiations or leave the conflict completely unresolved.

According to Kasikornbank, the Thai economy has become more resilient to political conflicts since the 2006 coup. The volatility of the stock index and baht are often great during periods before and after political events such as elections and demonstrations, but price fluctuations appear to return to their average trend shortly afterwards. Foreign capital flows, in the meantime, are expected to return when the new government is formed.

However, there have been some longer-lasting economic consequences. For example, foreign investors have lowered their investment weight in Thailand for fear of political turmoil that could interrupt business. Given smaller inflows of direct investment, investors are likely to import fewer capital goods. Declining imports due to declining investment have fuelled a larger current account surplus. The unfavourable effect of declining FDI and local investment has resulted in a reduction of technological transfers.

In the end, this will erode the country's international competitiveness in manufacturing and other sectors, according to the research.

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