Thai Prime Minister Says He’ll Resign

Embattled Prime Minister Chavalit Yongchaiyudh, facing mounting criticism over his nation’s economic tailspin, said Monday that he will step down later this week. The Thai stock market and currency rallied on the news in early trading today.

An end to Thailand’s political infighting would be good news in the West, where the economic crises in Southeast Asia are blamed for triggering last week’s dramatic gyrations in world stock markets.

Last week, the U.S. demonstrated its concern about the region’s financial instability by offering to contribute $3 billion to a $23-billion bailout for Indonesia orchestrated by the International Monetary Fund. In August, the IMF had approved a $17.2-billion package for Thailand.

“I think there will be quite a positive reaction from most Thais to the news [of Chavalit’s impending departure], and it will fuel a short-term rally,” said Kenneth White, managing director of Pacific Siam Strategic Consulting Co. in Bangkok. “More importantly, I think it will give them a sense of hope for the future.

“Rightly, or wrongly, this is Chavalit’s government, and he presided over quite a deterioration of the economy,” White said. “He is blamed by the Thais for their problems.”

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At a meeting late Monday, Chavalit told reporters that he must make sure the National Assembly this week passes six financial reform measures and three electoral laws required by a newly enacted constitution. He said he then he will ask for an audience with King Bhumibol Adulyadej on Thursday to discuss his future, and at that time will let others take over the government.

Some political observers here voiced skepticism that Chavalit will step down, particularly given his history of political waffling under fire. Several weeks ago, he drew heat for withdrawing a controversial fuel tax just days after it went into effect. That action severely eroded international confidence in the Thai government’s willingness to implement the tough austerity measures imposed by the IMF as a condition of the bailout package.

But Abhisit Vejjajiva, a member of the National Assembly and spokesman for the Democrat Party, said Chavalit will have no choice but to resign once his comments are widely circulated and the public sentiment stacks up against him.

“It will be very difficult for him not to,” said Abhisit, whose party is not a member of the six-party coalition government headed by Chavalit and his New Aspiration Party for the past 11 months.

Thailand’s highflying days are clearly over. After months of trying to beat back foreign currency speculators, the government allowed the baht, the Thai currency, to float July 2, causing a plunge in the local stock market and the baht that affected other markets in Southeast Asia.

In the wake of Chavalit’s announcement, the Bangkok stock market rose 6% in early trading today, and the baht strengthened to 39.5 to the dollar from its Monday close of 40.85. In recent weeks, thousands of Thais, including professionals and owners of small businesses, have taken to the streets to protest Chavalit’s handling of the nation’s mounting economic problems. Their biggest concern is a shortage of capital created by the closure of 58 troubled finance companies and the exodus of an estimated $4 billion a month in foreign capital since the July devaluation of the currency.

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Thais, who could see the loss of more than 2 million jobs in coming months, also have experienced a sharp increase in the prices of basic commodities such as gasoline and sugar.

But some foreign business leaders warned that a shake-up in the prime minister’s office, if it takes place, will be just a first step down a painful road to economic recovery.

“I don’t think the markets are going to bet everything on a new prime minister,” said David Proctor, chairman of the Foreign Banks’ Assn. in Thailand and the country manager for Bank of America. “I think the markets will remain volatile for some time to come.”