Global Insight Perspective

Significance

Events have moved swiftly in the past two days, with further significant changes expected over the initial two-week timeframe given by the coup leaders

Implications

The mood in Thailand, notably in the capital Bangkok, looks to have been largely accepting. This has resulted in a mixture of relief at the prospect of real political change, but also fear that the coup has damaged the country’s democratic image.

Outlook

Key factors we are now considering include the international response to the coup, the strength of the country’s democratic institutions, and the display of a true reform commitment.

Recent Developments

Since our coverage yesterday, there have been a number of interesting developments. Notably, state television has broadcast news suggesting that King Bhumibol Adulyadej has backed the coup by royal decree. The move is a notable one that should help neutralise any resistance from supporters of deposed Prime Minister Thaksin Shinawatra. Thaksin himself looks to have accepted the situation. Yesterday saw him fly from the United States— he had been attending the annual UN General Assembly meeting when the coup occurred—to London (U.K.). It is unclear whether he is to meet with British Prime Minister Tony Blair, but it was announced that he was pursuing private family business in the capital. “I was prime minister when I came [to New York], and I was jobless on the way back”, Thaksin was quoted by the Thai News Agency as saying.

Back in Thailand, the coup leader and head of the army, General Sonthi Boonyaratglin, announced yesterday that the hunt was on for an individual who was “politically neutral and loves democracy” to take on the premiership within the next two weeks. Sonthi also revealed that moves were under way to draw up an interim constitution, something that would be completed shortly and would then lead to the formulation of a new permanent constitution. A timeframe of one year has been given for this endeavour, with general elections expected in October 2007.

Less positively, the coup leaders have further cracked down on the media, prompting protests from the rights group Reporters Sans Frontières (Reporters Without Borders). Notably, a ban has been imposed on expressions of public opinion in media reports of the situation. Sonthi has said that Thaksin will be allowed to return freely to the country, but has warned that possible criminal proceedings may be brought against him.

Risk-Rating Changes

Global Insight has revised its risk ratings for Thailand twice in the past few months. In March—responding to the beginnings of the political unrest, and ahead of April’s snap general elections—we downgraded our Political Risk Rating from 2.5 to 2.75. This reflected the sense of instability and suggested further problems post-election; we found there was no need for a larger change, as Thailand was still a functioning democracy with a strong institutional framework. The coup clearly changed this situation, deposing the caretaker government and suspending much of the framework. As a result, we have further downgraded our Political Risk Rating, by 0.25.

Given the military component to the situation, we downgraded the country’s Security Risk Rating by 0.25 to 3.0. This rating remains under review: it was a bloodless coup and there has been no opposition to the move. As such, unless unrest breaks out, continued stability will warrant an upgrade, back to 2.75. This rating still remains relatively high, but the insurgency in the south and the high risk that Thailand is judged to face from the global terrorist threat preclude a further upgrade.

Outlook and Implications

Risk Triggers

The following issues and events have been identified as possible triggers for a further downgrade. These issues are being monitored on a daily basis.

Timeframe: We will be looking at whether the coup leaders stick to their stated timetable of initially appointing a prime minister, who will presumably then appoint a cabinet, within two weeks. This is regarded as a key indication of the military’s commitment to the transition to a civilian authority.

Institutional Framework: It is essential that as much of the political and legal framework as possible is reinstated. The coup leaders and forthcoming civilian government are expected to keep suspended those elements that might pose a threat to their positions, such as the Supreme Court. Everything else, however, should be reinstated to support a functioning government and investment environment. In this respect, Global Insight is considering the impact on Thailand’s Legal Risk Rating. If the legal framework is not restored, a downgrade would be prompted.

Broad Support: The political transition needs to maintain the support of all elements—the military, the crown, the capital, and the broader electorate. Any counter-challenge to this, whether from Thaksin’s rural supporters or elsewhere, will clearly have an impact on the risk situation. It should be remembered that 80% of the electorate live in rural areas, and it is from there that Thaksin has secured much of his core support. Over the medium term, a key issue will be the king’s continuing poor health. If the king for some reason is incapacitated, or even dies, during this key political transition period, we would envisage potentially serious political problems.

International Community: The new government needs the support of key players like the European Union (EU) and United States. There has been widespread condemnation of the coup from all international quarters, including notably the Association of Southeast Asian Nations (ASEAN)—of which Thailand is a key member— which has traditionally viewed internal political issues as beyond its remit for comment. There are calls for a return to democracy, but these might be satisfied by the reinstatement of the institutional framework and the appointment of a civilian administration.

Thaksin Alienated: The coup leaders need Thaksin to remain out of the country, or at the very least marginalised. They cannot afford to have him seeking to create a new support base that could threaten their reform drive.

Political Reform: This is clearly key, but also a longer-term risk trigger. The new administration must be seen as pursuing a clear policy framework for the establishment of political reform. The types of issues we expect them to consider are the introduction of greater transparency into the political sphere, the decoupling of politics and business, and a reduction in the powers of the prime minister. The coup can have no validity without this reform drive.

Contact: Raul Dary

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