Assessing The Political Turmoil

BMI View: We assess three scenarios that could play out over the coming months as the political situation in Thailand continues to intensify. We see increasing risks that Prime Minister Yingluck and her administration could resort to a violent clampdown on protestors by enforcing the Internal Security Act. We view this scenario as the most likely outcome given that this is also one of the very few viable options that the government has to bring a swift end to the protests. Our worst-case scenario suggests a potential military coup to overthrow the government, adding to Thailand's long and tumultuous history that has seen 18 coups since the country became a constitutional monarchy in 1932.

Thailand's political situation is deteriorating rapidly following a failed attempt by Prime Minister Yingluck Shinawatra and the ruling Puea Thai Party (PTP) to enact an amnesty law for political offenders - a move that is widely viewed as part of a broader plan to bring ousted former Prime Minister Thaksin Shinawatra back to power. Although widespread protests had already begun when the PTP first attempted to pass the amnesty law, the intensity of the protests only escalated after the party took an even more aggressive stance by proposing for a fully-elected Senate (a move that would likely have placed more of Thaksin's political allies in the Senate). However, it appears that the PTP's plans have completely backfired after its proposal to alter the composition of the Senate was ruled unlawful by the Constitutional Court.

The PTP's adamant stance to pass the amnesty law has also riled anti-Thaksin groups, triggering violent protests throughout Bangkok on November 25 as protestors broke into government compounds, forcing the government to expand the Internal Security Act (ISA) into other areas surrounding the capital. More than 100,000 protestors reportedly took part in demonstrations led by former opposition Democratic Party member Suthep Thaugsuban. Large scale protests were held in locations that included military and police headquarters, government offices and television stations, with protestors urging government officials to abandon their duties and take their side in overthrowing the Yingluck administration. Below, we assess three scenarios that could play out over the coming months as the political situation in Thailand continues to intensify.

Investors Are Fleeing To Safety
Thailand - Stock Exchange of Thailand Index (SETI) & Volume, mn shares

Assessing The Political Turmoil

BMI View: We assess three scenarios that could play out over the coming months as the political situation in Thailand continues to intensify. We see increasing risks that Prime Minister Yingluck and her administration could resort to a violent clampdown on protestors by enforcing the Internal Security Act. We view this scenario as the most likely outcome given that this is also one of the very few viable options that the government has to bring a swift end to the protests. Our worst-case scenario suggests a potential military coup to overthrow the government, adding to Thailand's long and tumultuous history that has seen 18 coups since the country became a constitutional monarchy in 1932.

Thailand's political situation is deteriorating rapidly following a failed attempt by Prime Minister Yingluck Shinawatra and the ruling Puea Thai Party (PTP) to enact an amnesty law for political offenders - a move that is widely viewed as part of a broader plan to bring ousted former Prime Minister Thaksin Shinawatra back to power. Although widespread protests had already begun when the PTP first attempted to pass the amnesty law, the intensity of the protests only escalated after the party took an even more aggressive stance by proposing for a fully-elected Senate (a move that would likely have placed more of Thaksin's political allies in the Senate). However, it appears that the PTP's plans have completely backfired after its proposal to alter the composition of the Senate was ruled unlawful by the Constitutional Court.

The PTP's adamant stance to pass the amnesty law has also riled anti-Thaksin groups, triggering violent protests throughout Bangkok on November 25 as protestors broke into government compounds, forcing the government to expand the Internal Security Act (ISA) into other areas surrounding the capital. More than 100,000 protestors reportedly took part in demonstrations led by former opposition Democratic Party member Suthep Thaugsuban. Large scale protests were held in locations that included military and police headquarters, government offices and television stations, with protestors urging government officials to abandon their duties and take their side in overthrowing the Yingluck administration. Below, we assess three scenarios that could play out over the coming months as the political situation in Thailand continues to intensify.

Investors Are Fleeing To Safety
Thailand - Stock Exchange of Thailand Index (SETI) & Volume, mn shares

Scenario A: Violent Clampdown On Protests

We see increasing risks that Prime Minister Yingluck and her administration could resort to a violent clampdown on protestors by enforcing the ISA, which gives security forces additional powers to arrest and detain individuals. Such a scenario would resemble the violent clampdown on anti-government protests in April-May 2010, when pro-Thaksin protestors tried to overthrow the Democrat-led government (more than 90 people were killed during the clampdown).

Although we acknowledge that such a hard-handed approach by the government (which Prime Minister Yingluck has so far pledged not to undertake) could further exacerbate the political divide in Thailand and fuel resentment towards the government, we believe that this is also one of the very few viable options that the government has to bring a swift end to the protests. We also view this as the most likely scenario in the coming weeks. To be sure, the outcome of a violent clampdown by the government would likely result in even greater uncertainties as to how the opposition and anti-Thaksin groups would react. Regardless, we can be certain that the political situation would remain tense for an extended period of time in the event of a violent clampdown by the government.

Scenario B: Peaceful End To Protests

The best-case scenario in our view would be a peaceful conclusion to the protests. However, we believe that this would require a solid commitment by the PTP to completely scrap its agenda of pursuing an amnesty law and more importantly, all efforts to bring Thaksin back to power. We also believe that a voluntary move by Yingluck to step down as Prime Minister would have an immediate impact towards easing political tensions in the near term. However, we view this as a highly unlikely scenario. Yingluck and members of the PTP will face a two-day confidence debate in parliament starting November 26, with the opposition accusing the party of corruption and attempts to enact laws to exonerate Thaksin of crimes he allegedly committed while in power. The outcome of the debate, should it be overwhelmingly in favour of the opposition could also help to ease tensions as protestors await further moves by the opposition to remove the PTP from power.

Losses Could Mount
Thailand - Exchange Rate, THB/US$

Scenario C: Military Coup Leading To The Establishment Of A New Government

In the worst-case scenario, we could witness a military coup to overthrow the incumbent government, adding to Thailand's long and tumultuous history that has seen 18 coups since the country became a constitutional monarchy in 1932. Such a scenario would likely have a detrimental impact on investor confidence as this would require a more complicated and extended process of establishing a new government. From an economic perspective, uncertainties over the new government's stance on its economic policies would be the most prominent risk for foreign businesses looking to invest in the country. Indeed, we note that such concerns are already manifesting in the financial markets, with the benchmark Stock Exchange of Thailand Index (SETI) having lost 6.2% of its value since the beginning of November. Meanwhile, the Thai baht has also lost 3.3% against the green back during the same period, suggesting to us that foreign investors are already shifting funds overseas amid rising political uncertainties in the country.

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