The latest action of Thailand’s Election Commission (EC) to investigate the main prime minister hopeful has heightened political uncertainty in the country with the potential to hurt market sentiment, according to academics and businessmen.
Despite dismissing complaints against Pita Limjaroenrat, leader of the Move Forward Party, over his alleged ownership of shares in a media company, the EC recently sprung a surprise by proceeding to investigate whether Pita, the PM candidate of coalition leader Move Forward Party, was qualified to run for an MP seat in the May 14 general election.
The election agency’s action has sparked outrage among supporters of the party. It has given rise to conspiracy theories of dirty tactics being employed by the suspected “mastermind” of an elite group using independent organizations and courts to grab political power.
Many observers are also worried that these sudden developments could potentially delay the formation of a new government, with its negative effects on the economy.
“The delay in a new government taking power would impact both foreign direct investment [FDI] and domestic investment, as foreign and local investors would prefer to adopt a wait-and-watch approach, and some may even choose other destinations [instead of Thailand],” said Tanit Sorat, vice chairman of the Employers’ Confederation of Thai Trade and Industry.
Businesses want to see who would become the next prime minister — Pita or property tycoon Srettha Thavisin of coalition partner Pheu Thai Party — and who would be the cabinet members.
Entrepreneurs are also keen to know what economic policies the new government would pursue, especially on the issue of hiking the daily minimum wage to 450 baht, Tanit said, referring to Move Forward’s election pledge. Industries, especially small and medium-sized enterprises, are worried about a sharp increase in production costs hurting their competitiveness if the daily wage were to be hiked.
In the worst-case scenario after the EC investigation, elections might have to be held for all the 151 MP seats won by Move Forward candidates.
Outgoing deputy Prime Minister Wissanu Krea-ngam, who is in charge of the government’s legal affairs, said recently that if Pita was found to be unqualified to endorse Move Forward’s election candidates, it might result in the disqualification of all Move Forward MPs.
“If the election result were to be overturned, it would lead to much longer delays and create much more uncertainty,” Tanit warned.
Trouble for the economy
The sudden political uncertainty dangles as a threat over the economy amid a global economic slowdown while energy prices remain high.
Thailand’s exports in the first four months of the year have contracted 5.2 per cent in dollar terms.
“The delay in a new government taking office would impact the economy in the third and fourth quarters and reduce full-year economic growth to less than 3 per cent,” said Aat Pisanwanich, director of the Centre for International Trade Studies at the University of Thai Chamber of Commerce.
Aat warned that any delay in the formation of a new government and political uncertainty would hurt the confidence of investors and consumers. He was also worried about the potential for political violence as the voters are frustrated about the delay in the formation of a new government despite a clear verdict in the general election.
Market confidence at risk
Some analysts believe that the EC’s decision to investigate Pita’s case might take a long time.
“Such a scenario would create more uncertainty about who would take government power and when, and that would negatively impact business sentiment,” said Somchai Jitsuchon, research director at the Thailand Development Research Institute, an independent think-tank.
Should there be a delay in the formation of the next government, investors would also delay their investments and wait to see the clear direction of the country, he said.
In addition, the delay in a new administration taking up the reins of power would definitely impact budget disbursement, especially capital spending as new investment projects need to wait for Cabinet approval, he said.
Competition for FDI
The number of countries wooing FDI has intensified, with governments offering competitive incentives to encourage businesses to set up manufacturing bases. Recently an Indonesian minister claimed that Japanese automaker Isuzu would be relocating its truck manufacturing plant in Thailand to Indonesia. Isuzu later denied the report.
Political stability in Indonesia has made the country more attractive for FDI, and at the same time, despite having better infrastructure, political uncertainty in Thailand could scare potential investors away. Some investors may even relocate their factories to countries with a more stable political environment.
Indonesia has a competitive edge because of the large domestic consumption guaranteed by its population of nearly 274 million people, as well as stocks of rare minerals, such as nickel which is essential for battery production for electric vehicles. Indonesia has been pitching itself as a hub for automakers for a few years now.
However, investors who have operated in Thailand for many years remain optimistic about Thailand’s competitiveness as a strong production base for car manufacturing.
“Thailand has good policies, such as BOI [Board of Investment] incentives. I hope the new government would continue such good policies,” said
Yeap Swee Chuan, president and chief executive officer of Aapico Hitech Pcl, a major auto parts manufacturer.
“The high quality of the parts made in Thailand is one of the country’s biggest advantages,” said Chuan, who is also honorary chairman of the Thailand-Malaysia Chamber of Commerce.
Street protests
As the country stares at a political vacuum ahead of a new Parliament meeting to choose the House Speaker and elect the new prime minister, the temperature in the country could rise. Political supporters of each side have vowed to hold rallies.
Supporters of the incumbent government want to show their moral support to senators who plan to vote against Pita for prime minister. Supporters of the coalition led by Move Forward Party have threatened to protest against the EC and the Constitutional Court as an expression of their loss of trust in the integrity of the two institutions.
“Political protest is a part of democracy. It is something we see happen in democratic countries,” says Somjai Phagaphasvivat, a political scientist. The important point is to prevent the peaceful protests spiralling into violence, he says.
“The EC action increases the uncertainty level, but we don’t know yet what the outcome would be. It is possible that the investigation might find Pita had not done anything wrong [in relation to the allegation of holding shares of ITV],” he adds.
By Thai PBS World’s Business Desk
