Week Ended: September 22, 2006

Coup D'Etat

Late on Tuesday night, word spread throughout Bangkok that armored units had been dispatched into the city to surround the national seat of the Thai government. A coup was declared, and Prime Minister Thaksin Shinawatra's government was overturned.

The military, led by a group known as "Administrative Reform Council," declared its loyalty to Thailand's monarch, His Majesty King Bhumibol Adulyadej. The national constitution was revoked, and parliament was suspended under martial law. Soldiers and tanks were adorned with yellow ribbons to demonstrate their loyalty to the King.

Thaksin, in New York with plans to address the United Nations, initially declared a state of emergency across Thailand. However, as events unfolded, it became clear the coup had successfully unseated Thaksin's government without bloodshed. The ex-PM subsequently cancelled his scheduled U.N. address; he has since made few public announcements, stating only that he planned to take a "deserved rest," and that he hoped a civilian government would soon be installed via general elections. Thaksin has reportedly retired to the U.K., where he is reputed to be a substantial property owner. Though the situation remains uncertain, it appears that Thaksin has chosen not to contest the coup - at least for the moment.

A prominent Thai businessman, Thaksin first came to power in a landslide victory in 2001. His policies initially reinvigorated both the confidence of the Thai people and the domestic economy, lifting the country out a protracted slump stemming from the country's "financial crisis" of 1997 - 1998. However, more recently, multiple allegations of corruption had been leveled at Thaksin's government, and some of his personal business dealings have been called into question.

Thaksin won two popular votes since his initial election in 2001; yet his supporters have increasingly been confined to Thailand's rural (and generally poorer) provinces. Meanwhile, residents of Bangkok and other urban centers have generally become vocal opponents of his rule.

Under pressure to step down, Thaksin announced he would not accept the PM post after a snap election held in the spring of 2006. However, he declared that for the moment, he would act as an interim, "caretaker prime minister," with fresh elections planned for November to either cement or overturn his mandate. However, even in his diminished role, major protests against Thaksin had continued in Bangkok; the protestors claimed that Thaksin's government had corrupted the electoral process, and thus the November elections would be incapable of generating a fair result. More protests were planned for this week, and though peaceful to date, the threat of violence could not be ruled out. Coup leaders suggested they acted in part to avert riots and bloodshed at the upcoming protests.

In recent years, Thailand practiced a form of parliamentary democracy established under a constitutional monarchy. Coups are by no means new to the country, though none had occurred since 1992. Thaksin's forced departure may be a welcome to relief to many, perhaps even the markets - yet this event marks a major step backwards for Thailand's democratic process.

King Bhumibol has, by proxy, endorsed the leader of the Administrative Reform Council, General Sonthi Boonyaratkalin. The King's reaction to the coup was closely watched by market participants. His Majesty has ruled for over sixty years, and he is widely loved and respected by his countrymen. His assent of the coup has done much to defuse any lingering tensions over Thaksin's ouster. Thus the coup has done little to upset the national order, at least thus far; the SET index has fallen about 3% since Tuesday night's events. Even so, the coup has also highlighted some of the fragility inherent in Thailand's social fabric: so very much of the nation's unity and order rests on the shoulders of one remarkable man, His Majesty, the King.

Andrew T. Foster
Director of Research, Portfolio Manager
Matthews International Capital Management, LLC

 

 

Single country and sector funds may be subject to a higher degree of market risk than diversified funds because of concentration in a specific sector or geographic region.