Thailand’s (Un)Ambiguous Election

With the electorate calling for change, the impact on Thailand’s business and political landscape is far from clear.

The results of Thailand’s general election last month have been interpreted by many as a clear public rejection of the country’s military, political and royal elite, all of which have significant interests across the economy. While there remain obstacles, at the time of writing the most likely outcome of the election appears to be a coalition government led by the youth opposition party Phak Kao Klai (Move Forward).

That said, regardless of the final form Thailand’s new government takes, investors and corporates alike should keep a watchful eye on developments in the country over the coming months.

Background

Thailand’s election, which took place on May 14, saw more than half of the country’s electorate vote for Move Forward, and Pheu Thai, another opposition party whose predecessor was led by former Thai prime minister Thaksin Shinawatra. Neither party won the required minimum 376 seats needed to form a government. As such, Move Forward – led by the charismatic 42-year-old Pita Limjaroenrat – is busy shoring up support for a junior coalition government partner. With talks ongoing, Pheu Thai appears to be the primary contender for this role.

Nonetheless, even if the two parties can agree on a coalition, they still face hurdles in forming a new government. They will need the support of Thailand’s House of Assembly, made up of the House of Representatives (the lower house) and the military-appointed Senate (the upper house). Notably, in Thailand’s previous election in 2019, then prime minister (and former commander-in-chief of the Thai armed forces) Prayut Chan-o-cha secured the Senate, ensuring he retained the premiership, despite Pheu Thai having the largest share of the electoral vote.

Changing Investment Environment

Thailand’s business community has been pushing for a new government to be formed as quickly as possible, and with good reason. The country’s history has been marked by military coups, overthrown governments and civil unrest, most notably in 2014 when the military removed then-caretaker prime minister Yingluck Shinawatra and established a military junta to govern Thailand. Businesses should not discount the possibility that the military or other conservative elements of the political spectrum could resort to extra-legal tactics, such as another coup, to obstruct Phak Kao Klai from forming the new government, which could result in escalating social tensions and civil unrest.  Any sign of political instability or post-election deadlock would almost certainly hinder potential investors who may gravitate toward other more politically stable countries in the region, such as Vietnam. On the other hand, a peaceful transition of power would assure investors of stability in Thailand and bolster its post-pandemic economic recovery.

Any holdups or deadlocks in the political process could have a knock on effect for key infrastructure projects, in particular. One illustrative example of current headwinds is Thailand’s Eastern Economic Corridor, a USD 52 billion infrastructure project that includes high-speed rails and special economic zones, which in order to commence on time will require the country’s 2024 fiscal budget to pass through both chambers of the country’s House of Assembly. The new government is also likely to retain pro-foreign direct investment policies introduced by the previous administration, which had been led by the military-backed Palang Pracharath party.

Possible Scrutiny of Royal and Military-linked Assets

Phak Kao Klai has called for reforms to Thailand’s military and, perhaps most importantly, its monarchy. The royal family has long been seen as sitting above public scrutiny thanks to the country’s powerful lèse-majesté law, which carries jail terms of up to 15 years for any perceived insult towards the monarchy. Recent events however suggest the tide may be turning with mounting public discontent over the Thai royal and military elite; 2018 marked a turning point in the conversation around the role of the country’s monarchy with a series of major protests against King Vajiralongkorn’s decision to bring royal assets worth tens of billions of USD under his direct control, after they had been managed by a government agency for over 80 years.

Phak Kao Klai proposed reforms also increase the likelihood of a stalemate between the party and pro-military elements in the parliament, and can delay the formation of a coalition government, as well as important policy decisions. While a wholesale political restructuring appears a distant prospect, investors should consider the potential for increased scrutiny of investments, partnerships or other business arrangements with a Thai royal, military or government nexus. Phak Kao Klai’s attempts to reignite the debate around Thailand’s political process will at a minimum lead to elevated international press scrutiny of any politically linked assets in the country.

Maintaining investor confidence

Thailand continues to represent an attractive regional market for foreign capital. Nonetheless, with a complex political and business environment, investors should stay abreast of developments, ensuring they understand the macro environment in which they are operating, as well as their local counterparts and the potential risks to their business from a change to the perceived status quo.