Previous Quarterly Editions
Expropriation Risk: 43 45 44 44 Political Violence Risk: 55 50 46 42 Terrorism Risk: 59 56 58 58 Exchange Transfer and Trade Sanction Risk: 45 43 42 44 Sovereign Default Risk: 44 44 43 42
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Thailand’s military continues to delay elections for a civilian government while it crafts laws and institutions to place limits on any new civilian administration, and those political parties linked to Thaksin Shinawatra, the deposed prime minister, in particular. All the legislation needed to enact the 2017 constitution has now completed its passage through the National Legislative Assembly and the Constitutional Court. The need to complete this process had been used as a reason for delaying elections, but now the military is insisting that any election must wait until after the coronation of King Vajiralongkorn. This suggests that no election is likely before the second half of 2019, at which point the government may say that it makes sense to hold the campaign and election during the November-February cool season, meaning a vote in 2020. The need to register political parties with the new election commission earlier this year saw the creation of the pro-military Palang Prachart (Action Coalition for Thailand) party. Its leadership has indicated that the current prime minister in the military government, Prayut Chan-o-cha, will remain prime minister if it wins the election. Efforts to secure the loyalty of both pro-Thaksin and Democrat MPs for the new party is yet another strategy to weaken the power bases of existing political parties, and to ensure the dominance of a future pro-military government. The party is also a vehicle for the formal return to politics of Suthep Thaugsuban, who led the street protests against the government of Yingluck Shinawatra that preceded the 2014 military coup. His role will be to ensure that Prayut continues in office. Economic growth is expected to be around 4.2% this year, a small improvement over 2017 that reflects export growth and an increase in private consumption. In June, Prayut traveled to London and Paris on his first diplomatic trip to Europe since the EU removed sanctions related to the 2014 coup at the start of 2018. The Trump administration has not pressured Thailand to reduce its trade surplus, as it has with Indonesia, even though Thailand has the second largest trade surplus with the US in Southeast Asia. Tourism from China, which accounts for one-third of all revenue in the sector, has already dipped noticeably since an accident in July in which 47 Chinese tourists died as a double-decker tourist boat capsized in a storm off Phuket.
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New regulations for the Eastern Economic Corridor, a special economic zone that the government hopes will draw billions of dollars of investment into sectors including cars, electronics and biotech were approved in May. These allow for 100% foreign ownership of property developments and 100-year leases for corporate leaseholders, who will be able to sublet parts of their space. Thailand’s property law currently prohibits foreign ownership beyond 49%, and this new flexibility in the sector should encourage foreign participation in the property market. The science and technology ministry is also considering whether to allow full foreign ownership of high-tech start-up companies. The government continues to crack down on the use of domestic proxies by foreign companies looking to circumvent ownership restrictions, but an ongoing shift away from these restrictions, largely to accommodate Chinese investors, should see this issue become less significant.
The military government’s ban on all political activities still remains in place four years after the coup, and it will only be relaxed gradually ahead of eventual elections. In May, a small protest involving no more than 500 protestors marking the anniversary of the coup was prevented from marching to Government House and its leaders were charged with sedition. The absence of any follow-up protests demonstrates the weakness of civil society under the current regime. The government continues to use legal mechanisms, particularly charges of corruption, to maintain political pressure on allies of Thaksin Shinawatra. A change in the law now enables corruption cases against politicians to be tried in their absence and in June a new arrest warrant was issued for Thaksin himself for alleged loan fraud. Two other corruption-related cases could be brought against him later this year under the new law.
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In June, Malaysia’s new prime minister confirmed that his government will continue as a mediator in the peace process between the Thai government and separatist militants seeking greater autonomy for the country’s southern border provinces, but the process has effectively stalled. Efforts by the military to establish a safety zone in Narathiwat province have yet to be accepted by the most important separatist organization in the region, the National Revolutionary Front (BRN). Bombings in the country’s four southern-most provinces spiked in May during Ramadan, as has been the case in recent years. Since April, when Malaysian police announced that four terrorism suspects had fled to the region, the Thai government has been concerned about the possibility of Islamic State involvement in this particular conflict. However, there has been no evidence so far of outside involvement in the conflict, whose roots go back more than a century.
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The central bank has acknowledged its active intervention to support the value of the baht as strong reserves and a substantial current account surplus make possible a more aggressive defence of the currency. The baht was under pressure in June amid rising oil prices and concerns about the impact of the US-China trade dispute but should stay relatively steady as 2019 approaches. The bank left interest rates unchanged again in August at 1.5% but expects to raise them as inflation begins to rise from its current level of 1.5%.
Although foreign exchange reserves have fallen back slightly from their recent highs, they are still more than 200 billion dollars. Public debt has declined slightly to 41.2% of GDP, despite the government borrowing for an array of large infrastructure projects, and government spending has slowed recently. Government borrowing is now capped at 60% of GDP by the Fiscal Responsibility Act passed in April.
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