Global Economics

Thai Leader Bows Out, Market Applauds


When Thai billionaire businessman Thaksin Shinawatra swept into power in 2001, he promised to be a "CEO Prime Minister." Thailand prospered, and 13 months ago he and his ruling Thai Rak Thai party pulled off a stunning landslide victory. In a nation known for an ineffectual, revolving-door government, Thaksin became the first prime minister ever to win an outright majority. Not so long ago, Thaksin had real ambitions to emerge as Southeast Asia's most influential leader.

Yet the Thaksin era came to an abrupt halt on Apr. 4 when the Thai premier, in an emotional televised speech, announced his intention to resign. "There's no point if adults keep trying to beat each other up and finally destroy the country," he said.

Though the Thai economy performed well under Thaksin, he generated intense criticism at home for his heavy-handed tactics toward drug dealers, Muslim insurgents in the southern region of the country, and the Thai press. Much of urban Thailand was turning against him, which he probably could have survived -- but in the end, a controversial business transaction involving the sale of his family stake in telecommunications and satellite conglomerate Shin Corp. made his position untenable.

"PRETTY EUPHORIC." In recent weeks Thailand has been the scene of massive street demonstrations and therefore international media scrutiny. Foreign investors started getting skittish last month, fearing political instability. A snap Parliamentary election on Apr. 2, in which Thaksin's ruling party prevailed, failed to ease the tension when key opposition parties boycotted the vote.

The market reaction to Thaksin's resignation (he intends to stay on as head of the Thai Rak Thai party) was positive. Thai stocks registered their biggest gain in nearly two years. They finished up more than 3%, and the baht strengthened against the dollar.

"The mood is pretty euphoric," says Adithep Vanabriksha, an equity fund manager in Bangkok for Aberdeen Asset Management, which has more than $1 billion invested in Thai stocks. "There were daily protests growing in size, and that's not something investors like. Now the risk of any possible violence has been greatly reduced."

SPENDING LEGACY. Thaksin clearly miscalculated how much public outrage would be generated by the business transaction involving Shin Corp., a conglomerate he founded, which is now controlled by his family. In early February, the Thaksin family announced plans to sell a Shin stake of roughly 50% to Temasek, the investment arm of the Singapore government, for $1.9 billion. Under the terms of the deal, the Thaksin family avoided paying any capital gains taxes. Though the deal was legal, angry Thais quickly took to the streets.

Does the end of Thaksin mean the end of Thaksinonomics? Not necessarily. Thaksin remains leader of his Thai Rak Thai party and will have a strong say in choosing the next Prime Minister. It's likely that the populist spending that won him huge support among rural voters will continue, since it raised expectations among those voters. "They have made their weight and numbers important in the political world, you can't go back on this," says Chris Baker, the Bangkok-based author of a book on Thaksin. "This is a positive legacy."

Indeed, shoring up domestic demand was a pillar of Thaksin's economic policy, and the Thai economy looks set to continue with solid growth. Government forecasts of GDP growth between 4.5% and 5.5% are unlikely to need revision. If anything, the end of political uncertainty could even give consumers an excuse to open their wallets.

ECONOMIC ROOTS. But not everyone is convinced it's all smooth sailing for the economy, especially if government pump priming cools off. "It's difficult for the next government to veer off and do its own thing so there will be a policy vacuum," says Sriyan Pietersz, head of research at JP Morgan Securities in Bangkok. That could mean ambitious plans to spend nearly $4 billion on mass transit this year may not go through, he says.

There's also hope that whoever succeeds Thaksin will take a softer approach in dealing with separatists in the south, where hundreds have died in sectarian violence in the past two years. A former policeman with strong allies in the army, Thaksin treated the unrest as a security problem. Some suggest he failed to appreciate the lack of economic development in the Muslim-dominated region that many say lies at the root of the problem.

And then there's the question of how Thaksin himself will fare. As long as he maintains his seat as a member of parliament, he will have to keep his distance from those billions his family pocketed from the sale of Shin Corp. And he may have his hands full dealing with allegations about the deal by regulators, emboldened now that he no longer sits in the premier's office. "Various regulatory bodies and the judiciary were pushed [by protestors and opposition] to investigate parts of the Shin deal, but were reluctant" to do so, says Baker. No more.


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