Analyst views on the Thai coup: BP takes a negative view
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Analyst views on the Thai coup: BP takes a negative view

Nomura on May 22:

Our assumption, for now at least, is that the army will look to launch a process similar to that which followed the September 2006 coup, which took 16 months to conclude (i.e., the negotiation of constitutional reforms, followed by a referendum and then fresh elections).

However, we believe the political risks are much greater this time.

First, whether or not justified, supporters of the ousted government, the red shirts, will see the army’s move as consistent with opposition PDRC’s demands and part of an “elite” conspiracy to undermine Thailand’s democracy for their own ends.

Second, any attempt to weight the lower house in the elite’s favour, as the 2007 constitution did for the senate, is likely, in our view, to be rejected by the majority of Thais.

Third, the red shirts now appear to have the capacity not only to bring large-scale protests to the streets but also, we believe, to pursue a serious insurgency from its heartlands in the north of the country. The former could of itself be serious, considering the impact civil unrest has been having in over a dozen countries worldwide over the past 12 months or so; but the latter could be even more damaging, given the difficulty the army has had over the past decade or so grappling with an Islamic insurgency in the south. If the red shirts conclude that they will never be allowed to prevail through the ballot box, direct action of one sort or another is likely to look to be the only option open to them.

The economic implications of a coup d’état are undoubtedly negative because it amplifies further the political drag we have already seen in the last few months on sentiment and real activity. Therefore, it significantly increases the downside risks to growth forecasts for this year…

CIMB on May 22:

We were already negative on the country’s developments when the army announced martial law a few days ago, and had then downgraded our index target. It appears that with this latest military intervention, Thailand has not learnt from the recent political turmoil, which has cost the country massively over the past six months. We believe the coup will have even more serious negative repercussions on the market and economy. Even as some investors had initially thought martial law was the right step forward in bringing about political stability, we beg to differ and remain concerned about the road ahead for Thailand.

As such, we believe that there will be serious repercussions on the economy, as the private sector is likely to adopt a wait-and-see attitude. Moreover, public investment is likely to be postponed as the junta government may want to focus on political reform. Even though the new government still wants to implement infrastructure spending, we believe that it will have smaller multiplier effects as the private sector may not want to take risks of political uncertainties and want to wait for an elected government. It remains to be seen how the red shirts, ardent Pheu Thai supporters, will respond to the military coup. As such, we believe corporate earnings next year will be affected as well.

Phatra Securities on May 23:

Cautiously optimistic reaction to 2014 harks back to 2006

We have noticed mixed reactions to the 22 May 2014 coup. Those cautiously optimistic about 2014 largely recalled the aftermath of 2006 which we agree is the only basis for a valid comparison to the situation today. The optimist camp is positive for four main reasons. First, the coup was imposed to stop mass demonstrations that were paralyzing government and to avert possible widespread civil unrest. Second, the 2006 coup did not adversely affect the Thai economy. Back then, GDP growth bottomed at 4.5%; the baht strengthened; and the Bank of Thailand (BoT) began cutting rates aggressively from Jan 2007 to bring the policy rate down from 5% to 3.25% by the middle of 2007. Third, democracy was returned to Thailand with a new constitution and elections at the end of 2007. Finally, there was some international criticism but no discernible impacts on the Thai economy were ever reported. We would, however, be cautious rather than cautiously optimistic about prospects for 2014.

The Thai economy is much more open and weaker today

Prior to the 2006 coup, GDP grew more than 5% so the economy was strong. Today, it is contracting. Moreover, exports were US$10bn per month and tourist arrivals were 1mn per month (both were growing close to 20% in 2006), producing rising current account surpluses for the country. Back in 2005, the BoT overtightened in the face of a spike in oil prices and Fed tightening, raising the policy rate from 2% in early 2005 to 5% by July 2006. The BoT was, therefore, in a position to begin a rate cut cycle from Jan 2007, returning the policy rate to 3.25% by July 2007 (as inflation fell from 6% in 2Q06 to 2.2% in 2007). In 2014, exports are US$19bn per month and not growing, while tourist arrivals have been declining in recent months from 2.3mn per month achieved at the beginning of the year. Two key points. First, the BoT has already cut rates to 2% currently. Given our view, and that of BoT that inflation is expected to be 3% by the end 2014 and the Fed is expected to hike rates in 2015, we believe the BoT today has no room to cut rates further. Second, the Thai economy could be much more vulnerable to adverse reactions from foreign governments whose statements on the 2014 coup have been far from favorable.

Ending the political conflict with a coup

Optimists also see the coup as a means by which the military will restore law and order in the short term and use its absolute power to reform the country and end the political conflict in the longer term. Conservatives believe that experience from 2006 showed that the military needed to be more determined in rooting out the conflict and to work harder to restore national unity before allowing elections to take place. It remains to be seen whether such an approach will be taken and whether this would bring about political reconciliation in Thailand. In the weeks ahead, we think that three things will be important: how quickly martial law, the curfew and other restrictions can be lifted; who the new prime minister is as well as the proportion of qualified civilians in the new cabinet; and whether the new government could promise an election date that is no more than one year from now.

UBS on May 23:

Two days after the military imposed Martial Law and insisted “no coup”, the military has now announced that it is taking control. However, it seems to us that this is no knee-jerk reaction. The co-ordinated military response of detaining key political leaders in Bangkok, and simultaneously rounding up Red Shirt leaders in the northern provinces, and providing transportation to take protestors home, suggests a game plan has been in place in case political negotiations stalled between parties. The military are trying to promote a ‘business as usual’ environment: stay calm, go about your business.

Obviously, however, it is not business as usual – a curfew has been put in place from 10pm tonight to 5am, and the BTS will close at 8pm tonight. We are eight months into the political paralysis; enough time for planning behind the scenes. On that basis, we believe there is a high probability that an interim technocrat government has already been constructed, and could be put in place very quickly.

This is fundamentally different from the 2006 situation, when weeks passed before a prime minister was installed – a Privy Council member and ex- general. This time, we expect a civil technocrat government to be installed quickly, with no military participants. This group of ‘wise men’ would be likely to come from academia, the Bank of Thailand (or former BOT), and former ministers; there would have to be a perception of political neutrality, i.e. it should look credible. It will be interesting to see whether some centralist Red Shirt leaders get a seat at the table; some inclusions would obviously be a positive, exclusions a negative. We believe inclusive discussions have been ongoing, but it is unclear if any common ground was achieved. A provisional date for future elections is likely to be announced, probably by the end of 2015, but certainly not anytime soon. The argument will be that time is needed to implement a reform agenda

The Nation has an excerpt from Moody’s Analytics analysis:

Moody’s Analytics came up with the lowest economic growth forecast for Thailand, at only 0.2 per cent this year, and this could descend downward with the military coup.

“The latest political developments could cause the economy to contract. Persistent political squabbling could also affect the long-term investment outlook and, by extension, the economy’s growth potential,” said its analyst, Fred Gibson.


“The last coup in 2006 was, I think, regarded by some in the military as a bit of a mistake because it widened political division and it only added fuel to the fire,” Jon Grevatt, an industry analyst for Asia-Pacific at IHS Jane’s in Bangkok said in an interview with Bloomberg television.

“This time the anti-government protesters will be appeased and placated by the coup, because it has pushed their move to put an unelected administration in power. But the pro-government protesters will be very aggrieved by this decision especially as the army has said that they will look to reform politics in the country.

“It’s one thing for markets to shrug off a military coup when there’s fairly buoyant growth, but quite another to be so insouciant when the economy’s contracting,”said Nicholas Spiro, managing director of Spiro Sovereign Strategy in London. “Investors are underpricing what brought about the coup in the first place: debilitating political dysfunctionality and its corrosive effects on Thailand’s economy.”

BP:  It is hard to say for sure what Prayuth will do and what will the reform process be, but Prayuth has made clear that we will have reform before elections just like the PDRC wanted. All signs so far are very negative of any inclusive process. Now, there is often talk that all sides agree with the need for reform, but the problem is that they have such different views about what is needed to reform.

To put it simplistically, the “anti-Thaksin” forces think the 2007 Constitution didn’t go far enough and are likely to impose further controls on any elected government whether through a New Politics with functional constituencies for between 30-50% of the seats for the House of Representatives and placing restrictions on the policies that an elected government can implement (or at least that of a pro-Thaksin government) with more outside “independent” checks-and-balances. NYT:

The lesson they learned the last time was that the medicine they prescribed after the coup was not strong enough,” said Thongchai Winichakul, a former student activist in Thailand who is now a professor of Southeast Asian history at the University of Wisconsin. “There’s a high possibility of very drastic measures and suppression this time.”

BP: Exactly so the anti-Thaksin forces will want to go further.

The “pro-Thaksin” forces (including the red shirts) think the 2007 Constitution went too far and want an Elected Senate (which is key as the Senate appoints the members of the “independent” organizations) and many other changes which are directly the opposite of what the anti-Thakin forces want. BP sees it will be very difficult to come to any agreement between the two sides on the nature of reform. Therefore, the make-up of any reform body will be key as they will dictate what the reforms are.

The big difference between now and 2006 is that back then the pro-Thaksin protest element was weak – as outlined above. While there were some protests in 2007, they never reached a critical mass. Despite trying to vote down the 2007 Constitution, the pro-Thaksin forces were unsuccessful. At that point, the pro-Thaksin forces were mostly happy to bide their time and to win the 2007 election and then try to change the Constitution later. Talk of accept the Constitution and you can change it later was something that the drafters stated back then, but of course, the Establishment blocked all attempts by a pro-Thakin government to amend the Constitution. Hence, BP doubts that the pro-Thaksin forces will be content to again give up control over rewriting the Constitution to anti-Thaksin forces because they will remember what happened last time. Also, this time, it seems clear the anti-Thaksin forces want to go much further than the 2007 Constitution so the pro-Thaksin forces will resist even more. The resistance is likely not to wait so long.

In addition, just like the Amnesty Bill united many people against the then Yingluck government and bringing many people outside of the traditional anti-Thaksin tent inside the tent, BP views the coup will also attract support from some of the so-called silent minority. There are those who are not necessarily Puea Thai supporters who oppose the coup. Some will be the same who opposed the Amnesty Bill.* Simply put, this means the number of people who would eventually be willing to oppose the coup and the aftermath will be much higher than in 2006. Now, all may not agree with the pro-Thaksin agenda, but the idea of election before reform is likely going to be the main point of agreement.

One of the problems is starting protests in such a restrictive legal environment. We got protests last night which were much greater than initial protests in 2006. BP expects them to grow, but it is difficult to predict how quickly as often “events” (such as a solider roughing up, injuring or killing protester(s) can affect things. It is likely to build over time.

*At some point, the coup leaders will need to give themselves amnesty as a coup is actually illegal…