Thai coup ousts Thaksin -- Could restore GDP growth
September 20, 2006

With the support of Thailand’s King the armed forces staged a nonviolent coup Tuesday and ousted the government of Prime Minister Thaksin Shinawatra. The "Democratic Reform Council" declared martial law, repealing the 1997 constitution and dissolving the government. The Council will appoint a Prime Minister in two weeks, draft a new constitution, and make plans to hold a general election within one year. The Army apologized on public television for any inconvenience.

Mr. Thaksin was in New York attending the UN General Assembly, and is planning to return to London, where he has a home.

What It Means:
The Thai economy has been in the doldrums since April, when Prime Minister Thaksin refused to step down in response to protests against his corruption. The protests began when Mr. Thaksin’s family sold their share in Shin Corp, a major Thai telecommunications company, to Temasek, which is owned by the Singapore government. Temasek is managed by Ho Ching, the wife of Singapore Prime Minister Lee Hsien Loong, and has been on a major buying spree throughout Asia. The primary concern is that the sale was done in such a way to avoid any capital gains tax for the Prime Minister and his family.

What happens to the democratic process in Thailand is significant, since it is a bellwether for the rest of SE Asia. Thailand is an economic success story, with 4 - 5% GDP growth. It is the only Asian nation that has never been ruled by a Western power. There is a risk of protests against the coup, since Mr. Thaksin was popular with the poor, rural areas, and has been trying to spread the economic success of Thailand to all. However, the military’s commitment to democracy, and support for the King, probably means that the coup will benefit Thailand’s economic growth.

Action Steps:
If you have no Southeast Asian holdings in your portfolio, by all means get some. If you have at least 30% foreign markets in your portfolio, hold off adding until it becomes clearer how the winds for democracy will blow in Thailand...and the rest of Southeast Asia.

Source: Bangkok Post web site