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By Shuli Ren
Barron's Asia Blog
September 6, 2015
On Sunday, Thailand’s National Reform Council voted down a draft constitution, helping the military junta to stay in power for at least two more years.
While this draft constitution, which includes an onerous “crisis panel” clause allowing a group of 22 members to seize executive power during a period of crisis, is widely expected to be voted down by the general public, analysts are nonetheless surprised that the rejection came so early.
“The speculation now in Bangkok is that hardline factions within the government may have wanted this draft to fail to avoid any transition… Borwornsak Uwanno, who led the committee drafting the constitution, said the military members of the NRC “listened to their senior people” according to one report, suggesting a pre-planned rejection,” wrote Bob Herrera-Lim at Teneo Intelligence, a geopolitical risk consultancy.
Sunday’s rejection of the draft constitution means that the military junta will be in power for two more years, till the first half of 2017, at the earliest. Teneo did the calculation:
The 2014 constitution automatically dissolves both institutions involved in the process—the NRC and Constitutional Drafting Committee (CDC)—and new members will have to be appointed, possibly by October. The next draft could be possibly up for a vote by the next NRC around April or May of 2016. A subsequent referendum by September or October 2016 would then push the elections closer to the second quarter of 2017—almost two years from now.
“This means that the underlying political uncertainty that has undermined economic growth for the past year will likely persist for the medium-term,” said Teneo.
Nomura Securities‘ economists agree:
Regarding the implications of the rejection on the broader economy, we continue to believe that, while extending the junta’s rule would give them space to provide more fiscal stimulus in the short term, the underlying political dynamics in the longer term would negatively affect economic prospects.
Although the political calm over the next few months will likely buoy government spending to some extent, we expect headwinds from other factors such as poor export growth and weak private sector investment demand to more than offset these gains, and further out, a more uncertain political environment will likely weigh on public sector spending. As has been the case in the past, political issues will likely be given priority, leaving the economic agenda (including structural reforms and large-scale infrastructure projects) on the backburner.
Year-to-date, the dollar-denominated iShares MSCI Thailand ETF (THD) retreated 16.3%. The Thai baht fell 9% and the Thailand SET Index dropped 8.5%.
On Sunday, Thailand’s National Reform Council voted down a draft constitution, helping the military junta to stay in power for at least two more years.
While this draft constitution, which includes an onerous “crisis panel” clause allowing a group of 22 members to seize executive power during a period of crisis, is widely expected to be voted down by the general public, analysts are nonetheless surprised that the rejection came so early.
“The speculation now in Bangkok is that hardline factions within the government may have wanted this draft to fail to avoid any transition… Borwornsak Uwanno, who led the committee drafting the constitution, said the military members of the NRC “listened to their senior people” according to one report, suggesting a pre-planned rejection,” wrote Bob Herrera-Lim at Teneo Intelligence, a geopolitical risk consultancy.
Sunday’s rejection of the draft constitution means that the military junta will be in power for two more years, till the first half of 2017, at the earliest. Teneo did the calculation:
The 2014 constitution automatically dissolves both institutions involved in the process—the NRC and Constitutional Drafting Committee (CDC)—and new members will have to be appointed, possibly by October. The next draft could be possibly up for a vote by the next NRC around April or May of 2016. A subsequent referendum by September or October 2016 would then push the elections closer to the second quarter of 2017—almost two years from now.
“This means that the underlying political uncertainty that has undermined economic growth for the past year will likely persist for the medium-term,” said Teneo.
Nomura Securities‘ economists agree:
Regarding the implications of the rejection on the broader economy, we continue to believe that, while extending the junta’s rule would give them space to provide more fiscal stimulus in the short term, the underlying political dynamics in the longer term would negatively affect economic prospects.
Although the political calm over the next few months will likely buoy government spending to some extent, we expect headwinds from other factors such as poor export growth and weak private sector investment demand to more than offset these gains, and further out, a more uncertain political environment will likely weigh on public sector spending. As has been the case in the past, political issues will likely be given priority, leaving the economic agenda (including structural reforms and large-scale infrastructure projects) on the backburner.
Year-to-date, the dollar-denominated iShares MSCI Thailand ETF (THD) retreated 16.3%. The Thai baht fell 9% and the Thailand SET Index dropped 8.5%.
