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World turns focus on Thailand, but real drama has only just begun

The Constitutional Court's removal of Yingluck Shinawatra as caretaker prime minister brought a number of international reactions. Most have been negative, reflecting foreign support of the status quo in Thai politics or a preference for business as usual.

Let's start with the view from Washington. The US State Department issued a statement saying that it had been "following closely" the developments after Yingluck's dismissal.

"We continue to urge all sides to resolve Thailand's political tensions in a peaceful and democratic manner so that the Thai people can choose political leadership they deserve," State Department spokeswoman Jen Psaki said.

"In keeping with Thailand's democratic ideals, a resolution should include elections and an elected government."

We are not sure whether the Thai Foreign Ministry - or any other Foreign Ministry in the world - has a policy of issuing a statement every time the US suffers an internal crisis, and also suggesting how Washington might resolve its domestic affairs.

Moody's, the credit-rating agency, followed suit by saying that the Court's decision against Yingluck would hit Thailand's financial health.

"The ruling is credit negative because it threatens to prolong the country's political crisis, which has lasted for six months, and makes a near-term compromise solution unlikely. It also heightens the risk of violent clashes between opponents and supporters of Yingluck's Pheu Thai Party. Both would negatively affect investor and consumer confidence and increase the downside risks to Thailand's growth outlook for 2014-15," the agency said in a report released yesterday.

In other words, if the Constitutional Court had handed down a verdict favourable to Yingluck, Thailand's status would be "credit positive". But is this true? The agency had been openly critical of several populist policies of the Yingluck government, warning that they might lead to negative credit outlook in the future. Hence, Moody's has now contradicted itself by supporting the political status quo and thereby implicitly opposing reform.

Credit Suisse also came up with a report responding to the court's ruling, which convicted Yingluck and nine Cabinet members for abuse of power over the National Security Council chief transfer case but left the rest of the Cabinet in place. The Pheu Thai Party named Niwatthumrong Boonsongpaisan, the acting Commerce Minister and former Shin Corp director, as interim prime minister in place of Yingluck.

" We consider the developments on the whole as negative for the market," said Credit Suisse. "On the positive side, we do not expect serious violence to result from the ruling. The pro-Thaksin red shirts are keeping their plans for a rally on Saturday, but they will convene in a distant suburb, where clashes with anti-government forces are unlikely. We suspect that the Reds will not take any provocative actions as long as the Pheu Thai Party remains at the head of the caretaker government.

"On the negative side, however, the court's decision prolongs the political uncertainty. Most in the market had anticipated that the court would convict the entire Cabinet and order the appointment of an unelected government, but the decision leaves Thailand with a caretaker government with limited powers and a relatively unknown figure as prime minister."

However, Credit Suisse believes that the fresh election, tentatively scheduled for July 20 by the government and the Election Commission, is unlikely to take place. More likely, it says, is the appointment of an interim government. If the advent of a new permanent government is delayed, value added tax would automatically have to be raised from 7 per cent to 10 per cent, as the budget for fiscal year 2014-2015 might not be passed in time.

Shifting our focus from the foreign views, let's go back to what might happen here next. Today, anti-government protest leader Suthep Thaugsuban will organise a "final" mass rally. His aim is to get millions of supporters out on the streets again. It remains to be seen what measures he has in store. But it is an open secret that Suthep will be moving to trigger the formation of an interim, unelected government to spearhead reforms that would sideline Pheu Thai.

Meanwhile the red shirts have been making aggressive moves in the background. The Constitutional Court's ruling has already been greeted with bomb and M79 grenade attacks.

We are heading into a period of high uncertainty.


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