Thailand Stocks Take Nose Dive Following Coup : Southeast Asia: The area’s fastest-growing economy is expected to stumble for months after the 8% market drop. The new military rulers back a free market system.
Stocks in Thailand plunged Monday in response to the weekend military coup, and economists predicted that Asia’s fastest-growing economy could stumble for months before a recovery.
The country’s new military rulers, who call themselves the National Peacekeeping Council, announced Monday that an interim government will be formed within a week.
But they backed off a promise to hold elections within six months, saying that a new constitution would be written in that time but that elections would be held at an unspecified later date.
The military also called in the heads of leading Thai banks Monday for talks about the country’s financial future. A military spokesman, Col. Banchorn Chawansil, said the military believed in the free market system and will continue to govern the country accordingly.
“The NPC understands that (the coup) might make the economy slow down for a while, but this is necessary,” Banchorn said. “It’s better to stop now but go forward in the long run.”
He said the 50 bankers at the meeting were urged to make loans only to “deserving businesses” and not to frivolous enterprises such as golf courses, which have become the latest investment craze in Thailand.
Supachai Panichpak, an adviser to the Thai Military Bank, said after the meeting that the military had agreed not to interfere in the economy. “It might be bad for a few days, but things will be cleared up in a week,” he said.
In taking power Saturday, the military dissolved parliament and imposed martial law.
The government also announced that it was setting up a committee to investigate corruption in the government of Prime Minister Chatchai Choonhavan, who was ousted from power in the bloodless coup Saturday. He remains under arrest.
A military spokesman said banks and financial institutions were being asked to reveal politicians’ financial assets.
“This committee is empowered to draw up a list of politicians who have acquired assets which have made them unusually rich in a way that honest people would not be,” the statement said.
Thailand’s administration under Chatchai was notoriously corrupt, particularly in awarding government contracts. Huge commissions were paid to government ministers to see contracts pushed through the government bureaucracy.
As a result, the coup has raised a question mark over billions of dollars of infrastructure contracts recently negotiated. They include Lavalin of Canada, which had agreed to build a multibillion-dollar Skytrain monorail system for congested Bangkok, and British Telecom, which had been hired for $6 billion to revamp and expand the country’s overloaded telecommunications system.
The first financial indicator of the coup’s impact came at the Securities Exchange of Thailand, where the index dropped to 734.24, a decline of 57.40 points, or 7.8%.
Gen. Suchinda Kraprayoon, the army commander, predicted a short-term fall on the market at a press conference Sunday. “It is only natural that there will be such consequence,” he said. “But we soldiers also invest in stocks. I’m thinking of scooping up some stocks at a bargain myself.”
Economists said the drop could signal a short-term flight of capital out of the country until the political situation stabilizes.
“There will obviously be a short-term hiccup,” said Philip W. Forrest, head of the Australian bank Westpac’s representative office in Bangkok. “There must be a lot of money that won’t come in now. There must be doubts about the future of some of the infrastructure projects.”
Foreign investment, particularly from Japan, Taiwan and South Korea, has been the principal engine behind the Thai economic boom, which has seen growth of 10% in the past three years.
Tim McKenna of Jardine Fleming Securities said that although the coup may ultimately prove to be beneficial to the economy, in the short term the political instability may cause investors to opt for such rival Southeast Asian countries as Malaysia or Indonesia, where labor costs are lower.
“Previously, Thailand enjoyed a large benefit because the risk factor was very low,” McKenna said. “But it will take a long time for the credibility to be reestablished.”
Certain to be hit hard by the coup is the tourism industry, Thailand’s largest earner of foreign exchange, which has already been crippled by the Gulf War and a U.S. warning to tourists of a “credible threat” of terrorism.
The State Department issued another warning to tourists after the coup, which one economist described as “the last nail in the coffin of the tourism industry.”
The collapse of the tourism business will affect everything from hotels to construction because there will be fewer new projects started. With a dozen new major hotels due to open this year, those that are heavily indebted could face a struggle to survive.
Economists were fairly optimistic about the long-term effects of the coup, saying the corruption under the Chatchai government had gotten so far out of hand that the government was barely functioning.
The military has also won applause for selecting seasoned economists to advise the new government. They include Amaret Sila-on, a former commerce minister; Virabongsa Ramangura, the former finance minister, and Chavalit Thanachanan, a former deputy finance minister.