Policy proposals to tackle monopoly and market dominance outlined by the new coalition expected to form the next government appears to have been given the cold shoulder by the stock market.
The SET Index recently traded below 1,600 points, a critical level, and saw significant capital outflows from the bond market.
The Move Forward Party-led coalition, which aims to form the next government, has vowed to reform the energy sector which has largely been blamed for high energy prices.
The party wants to revise government concessions in renewable energy given to large corporations such as Gulf Energy Development Pcl, a company listed on the local bourse.
Some investors even claimed that the party policy is not conducive to market liberalization.
The party is also eyeing levying a capital gains tax on stock trading, raising concerns among investors who are worried such a tax will reduce share trading activities and make the SET less appealing.
The current government had earlier flirted with the idea of collecting a tax on stock transactions, which was strongly opposed by the financial community. Due to the pushback, the outgoing government held back on the plan to impose a financial transactions tax.
Political uncertainties
Investors are also worried about political uncertainties after the general election. Despite Move Forward winning the most seats at 151, its leader and PM candidate, Pita Limjaroenrat, faces the risk of being disqualified by the Election Commission (EC) for allegedly holding shares in a now-defunct media company.
Even if he escapes disqualification, Pita will face a challenge to win support from senators appointed by the military junta who seized power in 2014.
If he cannot win a total of 376 votes from 500 MPs in the lower house and 250 senators, the premiership may be offered to candidates from the Pheu Thai Party, the second largest party in the coalition led by Move Forward.
Meanwhile, there also have been reports of a disgruntled Pheu Thai leaving the Move Forward-led coalition to form a government with parties from the outgoing government.
Some senators have already made their stance clear that they will not vote for Pita to become the prime minister because of his party’s stance on changing Article 112 of the Criminal Code that gives jail sentences of 3-15 years to those convicted of lese majeste. Progressive groups have pressed for amendments to the draconian law but the conservative camp sees it as an essential tool to protect the head of state.
In order to seal an agreement with the seven allied parties, Move Forward has dropped the lese majeste amendment pledge from the memorandum of understanding (MoU) to form the government. But the party is maintaining its stance to push forward an amendment to the law in Parliament, saying it wants to improve the relationship between the people and the monarchy.
Supporters of the party had earlier called for changing the law as part of monarchy reforms. The party had campaigned on amending the controversial Article 112, which had made it stand out from other political parties.
Legal hurdles due to undemocratic rules set by the previous junta, could delay the formation of a new government. And its implications could lead to a chaotic political game. Some even speculate that the Constitutional Court could be used by conservative forces to have the Move Forward Party or Pheu Thai Party dissolved.
Many critics have called for the EC to quickly endorse the results of the election, in less than the 60 days allowed by the law.
“Should the EC quickly endorse the election result, then Parliament could open immediately to select the House Speaker and then pick the prime minister,” said Anusorn Tamajai, executive committee at Pridi Banomyong International College of Thammasat University.
A clear picture of the direction of Thai politics is expected to boost investor confidence as well as consumers.
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Boosting confidence
Recently, Pita and his economic team met with the Joint Standing Committee on Commerce, Industry and Banking. The two sides held discussions about some of the economic policies espoused by the new coalition.
The business community supports reform of the energy sector, which would potentially lower the electricity bills for both households and businesses. Business leaders have complained about the high cost of electricity in Thailand compared to Vietnam, arguing that it makes them less competitive in the global market.
Business leaders are also worried about a plan to increase the daily minimum wage to 450 baht from current over 300 baht. The big jump is expected to inflate production costs for businesses, especially small and medium-sized enterprises (SMEs).
The Move Forward Party has promised to provide some cushion for SMEs by allowing them to have more tax reduction to offset rising labour cost.
Liberalizing alcoholic beverages
The Move Forward Party aims to tackle business monopoly and increase the bargaining power of small players. The obvious area is to further liberalize manufacture of alcoholic beverages, currently dominated by a few giant producers.
“The move should benefit agricultural cooperatives, as they would be able to increase the value added to their farm products,” said Somporn Isvilanonda, an economist and senior fellow at Knowledge Network Institute of Thailand.
Reducing inequality through welfare
The heart of the Move Forward Party’s policy focuses on inclusive growth that should benefit a large section of the population, not only the elite. To implement this policy, the party aims to collect more taxes from the wealthy while providing more welfare to vulnerable groups, such as children and the elderly.
Somchai Jitsuchon, research director at the Thailand Development Research Institute, said that he generally agreed with its economic welfare scheme. Move Forward’s approach is similar to the common prosperity policy implemented by the Chinese government under President Xi Jinping, which focuses on income redistribution to people in rural areas and clamping down on big businesses.
Volatile markets
It may not be fair to conclude that the domestic political situation and the tentative economic policy of the Move Forward Party is responsible for the volatility in the stock and bond markets. The US debt ceiling standoff initially and the persisting high inflation in the US have also been blamed for Thailand’s financial market volatility.
“Both domestic and external factors contributed to capital outflows from the bond market,” said Ariya Tiranaprakij, senior executive vice president at Thai Bond Market Association.
Economic challenges
Thailand’s exports in April fell by 7.6 per cent in April, the seventh successive month of contraction, according to a report by the Commerce Ministry on May 30.
Exports in the first four months of the year fell by 5.2 per cent due to slower global economic growth. Experts believe the new government will face challenges in navigating the economy, given the slower global growth.
By Thai PBS World’s Business Desk
