Back to business in Thailand

Thailand’s choice of prime minister sends a “back in business” message to investors, though risks of political tension remain.

Last month, Thailand confirmed its new prime minister, ending a 100-day political impasse following the country’s May 2023 general election. The new Thai coalition brings together the party of former premier and local powerbroker Thaksin Shinawatra and those of his erstwhile rivals the pro-military establishment: its formation has widely been seen as a sign of a landmark if uneasy truce between these key local elites and a shared understanding of the need for the country to move forward.  

That said, the new coalition is fragile at best, cobbled together from 11 political parties with very different stances on a wide range of key policies. Thaksin’s own return to the country and the slashing of his prison sentence has fuelled speculation over his possible role in Thai politics going forward. Further, it remains to be seen how the Thai public – whose votes in the recent elections many interpreted as a clear rejection of the establishment – will respond to a government made up of the very same elites they had voted against. These potential uncertainties in Thai politics will have implications for investors and corporates alike.

Background: The New Prime Minister

Two weeks ago, Srettha Thavisin, the chosen candidate of Thaksin’s party Pheu Thai, was formally appointed prime minister. This followed failed attempts to form a government by progressive opposition party Phak Kao Klai (known internationally as Move Forward), who had emerged from the general election as the single largest party. Negotiations had broken down due to Move Forward’s unwavering stance on its plans to reform the Thai monarchy and military – a contentious subject in the country. Ultimately, Pheu Thai – which had garnered the second largest vote-share – instead pulled together the new ruling coalition with 10 other political parties, including the previous pro-military ruling party.

Thavisin himself is a political novice, having only joined Pheu Thai in November 2022. Pheu Thai leaders have repeatedly pointed out that what Thavisin lacks in political experience, he makes up for in business acumen. He was until very recently chairman and CEO of Sansiri PCL, a listed luxury real estate development firm he co-founded in 1988.

An Improving but Challenging Local Business Environment

Thavisin’s appointment as premier harbours a positive outlook for the Thai business environment, owing to his business expertise and knowledge of economic issues. Thavisin’s additional role as finance minister and his appointment of other senior Pheu Thai members to other economic portfolios also sends the message that the party’s proposed fiscal policies can be smoothly implemented. A prominent business figure like Thavisin as head of the Thai administration is further likely to inspire confidence in foreign investors, who are keen for a continuation of business-friendly government policies in the country.  

One of the most significant challenges for Thavisin as premier and finance minister will be to spur growth in Thailand’s sluggish economy and reverse the outflow of foreign investment. Last month, the Financial Times estimated that foreign investors have taken about USD 3.8 billion out of Thailand’s stock market since the start of 2023, amidst the earlier political uncertainty. Thavisin will also have to balance fiscal discipline against his previous pledges of cash handouts, such as a plan to pay THB 10,000 (USD 286) into the digital wallets of each citizen aged 16 and above. Thailand’s central bank has cautioned the new government against looser fiscal policies, noting that the above incentive might further raise inflation rates.

Political Stability for Now but Uncertainty Ahead

Thavisin’s other main challenge will be providing the long-term political stability needed to tangibly impact economic growth. For now, his appointment has allayed speculation that the Thai military or other conservative elements might resort to extra-legal tactics if Move Forward was to form the government. However, Thavisin’s coalition is vulnerable to infighting as its 11 member parties have varied views on key issues. Additionally, Thavisin faces criticism from his own party members for working with the same military-backed political parties responsible for the coup that overthrew Thaksin when he was premier in 2006. At the same time, Thavisin lacks the firm support base that politicians typically gain through experience, and tap into to keep coalition members and their own parties onside.

Thavisin’s political bind became more apparent last weekend, when he confirmed his 34-member cabinet line-up that included a record six deputy prime ministers. Outside of the economic portfolios, it is notable that many of Pheu Thai’s appointees to other major ministries, such as defence, do not have strong sectoral experience or a progressive agenda. Inexperienced ministers risk having their portfolios driven by the bureaucracy, who may retain their previous approach of advancing the interests of military and monarchy-backed institution rather than heeding the new leadership’s line.

Thaksin’s Political Influence

Thaksin remains another wildcard in the new coalition. Many observers have linked Pheu Thai’s deal with the military-backed political parties to his return to the country, 15 years after he went into self-imposed exile. Thaksin returned within hours of Thavisin’s appointment and was promptly jailed to serve an eight-year sentence for abuse of power, though he was moved to a hospital on his first night and has since had this sentence commuted to only one year. This has fuelled speculation that Thaksin’s return was part of a potential deal with the conservative establishment. One also cannot discount the possibility of further clemency for Thaksin via collective pardons on occasions such the Thai king’s birthday.

Thavisin is widely reported to be a Thaksin confidant, and should the latter find his interests not served within the new government, there remains a possibility that he and/or Pheu Thai may take potentially destabilising steps viz. their pro-military allies. Already, Thavisin dropped from his cabinet line-up – reportedly at the last minute – Thaksin’s former family lawyer Phichit Chuenban. Chuenban’s initial addition to the line-up had triggered public criticism, including over his closeness to Thaksin.

Investors should also not discount developments relating to Move Forward, which is facing legal action that could lead to the party’s dissolution – any such outcome might lead to public protests and civil unrest. Move Forward may also be likely to initiate protests if Thaksin ends up avoiding jail entirely while multiple Move Forward members remain imprisoned for their roles in a 2020 protest for reforms to the Thai monarchy.

Maintaining Investor Confidence

With its young population and vibrant economy, Thailand remains an attractive market for foreign investors. Its selection of Thavisin as prime minister further shows that it intends to put business development and economic growth at the heart of its administrative policies. Businesses should get a better indication of the new coalition’s direction within the next two weeks, when Thavisin’s cabinet is officially sworn in and the premier presents his key national policies in parliament. Going forward, investors should continue to keep a keen eye on developments in the country, to better understand how to position themselves and their business interests in this complex political landscape.