In the tortured modern political history of Thailand military coups have become commonplace, the result of the growing fissure between the political and economic power of the Bangkok elite versus the rural poor. Thailand has endured 12 military coups and seven attempted coups since the absolute monarchy ended in 1932 and the army's right to intervene in political affairs has even been enshrined in law, making Thailand one of the world's most coup-prone countries.
Coups have become such a permanent component of the political landscape that they are actually good for business. Based on the country's economic performance over the past 40 years, coups have generally had a net positive benefit on the country's economic performance. In the years following the 1976/1977 coups, GDP nearly doubled. GDP more than doubled following the attempted coup of 1985 and rose slightly following the coup of 1991. It was only in the years following the 2006 coup, after the current battle lines had been clearly drawn by Thaksin Shinawatra, that GDP took a precipitous decline.
Thailand's foreign exchange rate remained flat during the same years, and rose after 2006. Likewise, Thailand's stock exchange rose in the years following the 1991 and 2006 coups. Also noteworthy is the role tourism has played over the past 20 years. Between 1995 and 2013, tourist arrivals rose from about 500,000 to 2,500,000. The country's foreign exchange reserves have risen in tandem, from just $3 billion in 1995 to $190 billion in 2011 -- much of it due to tourism.
Overall, the economy has performed remarkably well, given Thailand's propensity for radical political change, in spite of the government itself, which has generally done a poor job managing all that money. Over the past 10 years, Thailand has run a budget deficit 60% of the time, its spending has more than doubled, and its external debt has more than tripled. Although business and consumer confidence have largely remained steady since 2010, both are beginning to weaken. And although the baht has actually strengthened fairly consistently since 2001, it is at the same level it was 15 years ago.
The Thai army chief has stated that this week's coup was necessary in order to reform the country's political structure, economy and society. Just how he intends to achieve this is unclear, but pitting the country's red and yellow shirts in yet another electoral battle does not appear to be the answer. The political and economic divide is now too ingrained in the fabric of Thai society for an election to make a difference in the short or even medium term.
One thing that could make a difference would be if the tourists stopped coming, prompting the exchange rate, foreign exchange reserves, and stock market to fall substantially. Perhaps, if there was enough collective pain, the red and yellow shirts would determine that it is in everyone's interest to find common ground. Given that a shared allegiance to Thailand's king has not prompted the parties to find a path forward, perhaps less money in their wallets will. It seems the tourists are the only ones who can solve Thailand's political dilemma.
Daniel Wagner is CEO of Country Risk Solutions and author of the book Managing Country Risk.
Reposted with permission from International Policy Digest.
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