Coup Set to Result in Heightened Risks of Clashes in Bangkok

The Thai military has followed up its imposition of martial law with a full coup. While the coup has been bloodless and is set to result in a restoration of order in the short term, the pro-Pheu Thai ‘red shirts’ are bound to feel aggrieved. The military has historically been anti-Pheu Thai, and the dislodgement of an elected government will result in elements of the red shirts taking up arms against the military government.

The army is unlikely to revoke or renegotiate business contracts signed by the Yingluck administration, according to Maplecroft. However, the coup represents a serious blow for the prospects of reconciliation between the Pheu Thai and royalist institutions and political parties such as the Democrat Party in Thailand. Further, the previous government’s rice pledging scheme will almost certainly be scrapped. Security in Bangkok will remain heightened for at least 2-3 weeks. Transport networks, including international flight operations, are unlikely to be affected.

Prior to the declaration of a coup by Thai army chief Prayuth Chan-Ocha, Moody's Investors Service released a commentary stating that the imposition of martial law is credit negative because it represents a continuation of the political impasse that began in late 2013 and which has deterred consumption and investment and caused the economy to contract.

Thai army chief Prayuth Chan-Ocha had said in a statement that martial law was necessary to restore order in light of worsening tensions that have led to violence in recent weeks, and to find a way out of the country’s political crisis. However, lacking electoral legitimacy, the military’s task of resolving the intractable divisions between the anti- and pro-government forces looks fraught with uncertainty.

General Prayuth also stressed that the move did not represent a coup d’état, although the army is making executive decisions independent of the caretaker government, which is nominally still in power. The military’s decision to take control marks its most direct involvement in politics since 2006 when it ousted then-Prime Minister Thaksin Shinawatra. Following that coup, the period of military-led government was marked by policy incoherence, although the country’s economic and financial fundamentals held up well, overall.

With a coup d’état now imposed, the situation could get worse.

Following the formal declaration of the military coup, which comes only days after the Thai Army announced martial law, soldiers have moved swiftly to detain both Red Shirt activists as well as government officials. Legal counsel representing the pro-government Red Shirt movement has demanded evidence that activists who had been arrested were safe and not subject to torture or inhumane prison conditions.

The prolonged standoff between pro- and anti-government forces has started to take a toll on Thailand’s economy. Official data, released Monday, showed that Thailand’s real GDP shrank 0.6% in the first three months of 2014, compared to the same period a year ago – its first year-on-year contraction since late 2011 – as private consumers and investors held back from spending due to concerns over political uncertainty.

Thailand’s Office of the National Economic and Social Development Board at the same time cut its view for full-year GDP growth in 2014 to 1.5%-2.5%, from the 3.0%-4.0% that it projected in February. That compares with growth of 2.9% in 2013, 6.5% in 2012 and an average of 3.9% over the past 10 years.

Since parliamentary elections were called in December 2013, Thailand has been administered by a caretaker government and that will continue to be the case under martial law. However, the administration is limited in its capacity to mobilize fiscal resources in order to stimulate economic growth, highlighting the importance of a resolution to ongoing political turmoil. For example, a caretaker government is not authorized to formulate a new budget, and is restricted to merely reenacting the previous year’s appropriations for current expenditures. New appropriations for capital spending, such as infrastructure projects, can only be authorized by a legitimately elected government.

The deterioration of the political situation in Thailand to the extent that the army felt compelled to impose martial law reflects the heightened degree of political uncertainty, as seen in repeated delays to hold national elections, the unchanged intention of the main opposition party to boycott a future poll and the unwavering desire of the main anti-government opposition group to dismantle democratic governance in Thailand.

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