Thailand’s Seemingly Intractable Political Woes


It’s like déjà-vu all over again. Back in 2006, Thailand was rocked by massive street demonstrations, which were followed by a call for early parliamentary elections. Similar protests happened in 2008, again in 2010, and again at the end of 2013. The situation that’s unfolding on the streets of Bangkok today is one that this country has seen before.


In January 2006, opponents of then-Prime Minister Thaksin Shinawatra, known as Yellow Shirts, began taking to the streets to protest his leadership and personal business dealings. In September of that year, the military ousted Thaksin in a coup—accused of official corruption, he fled the country in 2008 to avoid prison—but his supporters (known as Red Shirts) and opponents have been clashing ever since. The antipathy brought large-scale demonstrations to the capital in 2008, when Yellow Shirts protested the pro-Thaksin camp’s rise to power in the first post-coup elections, and then again in 2010, when 90 people were killed during Red Shirt demonstrations aimed at driving then-Prime Minister Abhisit Vejjajiva from power. They were back at it this past Monday, when mayhem again roiled the capital city of Bangkok, with as many as 170,000 anti-Shinawatra protesters blocking major intersections and vowing to besiege ministerial houses.


The upshot of all this is that after eight years, Thailand has made virtually no progress in resolving its political strife. The current batch of protesters ultimately aims to topple Prime Minister Yingluck Shinawatra – the former prime minister’s sister, who came to power in the 2011 election. (The recent anti-government outrage started in response to a bill proposed by the ruling party that would have allowed Thaksin to avoid prosecution if he returns to the country.) “We still hold some hope for a compromise between the two sides, but it appears increasingly possible that raucous street protests and frequent changes of government could scar the political landscape for several more years,” Credit Suisse analysts Dan Fineman and Siriporn Sothikul said in a recent note called “Thailand Market Strategy.”


A temporary caretaker government has run the country since the prime minister dissolved Parliament in early December. But political observers fear the general election to install a new government, currently scheduled for 2 February, may not happen at all. The opposition is boycotting the vote – perhaps because a pro-Thaksin party, which enjoys widespread support in rural Thailand, would likely come to power – and protesters could conceivably block voters from reaching polling sites on Election Day. Voided elections would throw the country into a constitutional crisis – if a new Parliament isn’t elected, MPs can’t choose a new prime minister. In that event, the Thai courts would likely intervene and appoint a new government.


And a court-appointed government would likely prove unable to resolve the festering political rift, even if it tried to implement constitutional reforms or plan new elections. “We suspect that any constitutional change implemented without the consensus of both sides will fail to resolve Thailand’s conflicts,” the Credit Suisse analysts wrote. “The opposition has yet to specify what reforms it seeks, raising questions as to whether easy answers can be found.” Indeed, opposition leader Suthep Thaugsuban told supporters this week that, “there are only two ways. We win and remove Yingluck, or we lose and go to jail.”


One positive is that another coup seems unlikely at this point, and violence appears unlikely to surpass the bloody protests of 2010. In recent years, bloodshed has been somewhat contained in Thailand because the country’s elites prefer exile to carnage, public opinion condemns the use of force against protesters, and the army is relatively unified, which means civil war is improbable. “Our worst-case scenario envisions a multi-year continuation of the events of the past eight years—frequent changes of government, raucous street protests and ever-present tensions—but no serious escalation of violence,” Fineman and Sothikul wrote.


A compromise between the two sides is the country’s best hope, and although unlikely, it could conceivably occur under several scenarios. First, the ruling party might become more amenable to finding a middle ground if the opposition were to settle for constitutional reforms over the downfall of the Shinawatra government. Second, the opposition might let up on its demands should the ruling party choose a new prime minister from outside the Shinawatra family. Third, it might be placated if the government promised to stop seeking amnesty for the exiled Thaksin, who has been sentenced to two years in prison by the Supreme Court.


The problem is that the likelihood of any of the above actually happening seems remote. For one, Thaksin doesn’t appear willing to give up his desire for a homecoming. It’s also doubtful that the opposition would accept a prime minister from the ruling party no matter what family the leader belonged to. After all, former leader Samak Sundaravej, who is not related to the Shinawatras, was unable to prevent the 2008 protests from erupting. Most importantly, the heavy dose of distrust that exists between the two sides stands firmly in the way of any deal. “The two sides are like perfectly matched prizefighters, each with equal strengths and weaknesses and neither able to deliver a knockout blow,” Credit Suisse notes.


Perhaps surprisingly, the dismal political outlook may not spell catastrophe for investors. Southeast Asia’s second-largest economy has shown resilience amid the upheavals of the past eight years, and the Thai stock market has tended to take its cues from the country’s broader economic growth trends rather than its politics. The Thai economy depends heavily on exports, and the global downturn in 2008 and its subsequent recovery in 2010 had a greater impact on markets than did the political turmoil at home. Markets were only temporarily affected by the 2006 coup and the 2009 and 2010 Red Shirt riots, Credit Suisse notes.


While investors aren’t entirely immune to the uncertainty, a major selloff last year among foreign shareholders seems to have slowed, and those with longer time horizons are already scouring the market for cheap stocks. And there may be some bargains to be had. Thai stocks have gone from being among the most expensive in non-Japan Asia a year ago to the second cheapest today, according to a Credit Suisse analysis measuring price-to-book value versus return on equity. The banking, residential property and energy sectors are all trading below their regional peers, with only Chinese banks coming in significantly cheaper than Thai banks. Tourism stocks, too, are trading at historically inexpensive levels. Credit Suisse is “strongly bullish” on that sector, which has usually proven to be a good buy during political uprisings.


That said, the economy won’t be left completely unscathed by the recent upheavals, which have now been going strong since November. This month, Credit Suisse cut its 2013 GDP growth projection to 2.8 percent from 3.3 percent, and its 2014 forecast to 3 percent from 4.5 percent. Plus, it’s possible that equity markets haven’t reached their nadir—during the past episodes of unrest in 2006 and 2010, stocks traded at even greater discounts than they are today. “For the broader market, a rebound is unlikely until investors are comfortable that the situation will not deteriorate further,” Fineman and Sothikul wrote on 7 January. “We do not believe that we are yet at that point.” With protesters vowing less than a week later to lay siege to the country’s stock exchange, the analysts might be right.


Photo by jongjet303 /