Thailand in disarray as political crisis gets worse

Investors had become inured to the cycle of coups affecting Thailand. But this time, it could be different.

"Look and despair," says The Economist. "A decade ago, Thailand was a shining example rare proof that in southeast Asia, a vibrant democracy could go hand-in-hand with a thriving economy."

Now it's in "disarray" after a court ruled that the prime minister, Yingluck Shinawatra, and nine cabinet ministers, must step down over accusations of nepotism in the appointment of the country's top security official in 2011.

The background to the case is long and tangled. Briefly, Thailand is locked in a protracted struggle between a populist elected government, and an elite of businessmen, the army, the judiciary and the royal family.

This has been going on ever since Yingluck's brother Thaksin came to power in 2001 on a political platform that reached out to the rural majority, previously largely ignored by Thailand's rulers (Thaksin is now in exile after being deposed in a coup in 2006, but clearly pulls the strings from his base in Dubai).

Neither side emerges spotless from the battle. However, the extent to which the establishment has subverted the system in an attempt to oust the Thaksinites is probably the greater sin.

None of this is new for Thailand. Even before Thaksin came to power, the country was infamous for frequent coups. This has bred a certain level of acceptance of its ghastly politics: "In the past, international investors have given Thailand the benefit of the doubt, thanks to the economy's proven ability to bounce back," notes Pavida Pananond in the Nikkei Asian Review. But this time, the outcome could be different.

The Thai economy is unusually weak: economists expect it to grow at 2.8% this year, roughly half the rate of regional peers, says Michael Peel in the FT. It faces a growing need to improve productivity as rivals such as Vietnam compete for foreign investment.

That will be difficult with its politics now at a complete stalemate and the prospect of violence growing as "Thaksinite supporters threaten conflict on the streets", says The Economist.

Despite this, markets have barely moved: the MSCI Thailand index is still up 5% this year. In the past, it's paid to hope for the best whenever Thailand goes though this kind of upheaval but investors may be too sanguine this time.

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