Thai stocks struggled with a 20% loss on the MSCI Index through November despite the army junta’s naming of Somkid Jatusripitak, previously Finance Minister during the Thaksin Shinawatra regime, as economics chief with a mandate to speed lackluster 2-3% GDP growth.

Bangkok at night

He immediately announced $4 billion in rural loan relief and stimulus alongside the existing $50 billion multi-year transport infrastructure plan now focused on subway upgrades, and claimed he could work with the current Prime Minister Prayuth Chan-ocha who ousted Thaksin’s sister as the last democratically-elected head of government. The new leadership, after a year and a half in power, recently delayed a constitutional reform draft as a prelude to return of civilian rule, and has been widely condemned by human rights and media watchdogs for crackdowns on press freedom and political parties.

With King Bhumipol approaching his 90th birthday, the army has tried to gain popularity by emphasizing royalist leanings, and brought charges against critics through “lese-majeste” defamation probes that the US ambassador denounced as extreme. It recently removed a headline article in the International New York Times alleging corruption around a $30 million monument to former kings, and citing the huge run-up of public and private debt which has spooked investors.

The economy grew 1% in the last quarter through September to beat the previous period as public investment ramped up at annual 20% increase for showcase ventures like a joint rail line with the Chinese, which could also aid tourism contributing one-tenth of GDP. The Finance Minister also unveiled a $3 billion innovation fund to support additional infrastructure and related stock exchange listings. The domestic building and technology focus is designed to offset disappointing commodity and electronics exports to the rest of Asia, while auto assembly remains strong. In October industrial output fell 4% on trade gloom, amid a wider current account surplus on declining imports. Private consumption also slipped on onerous household debt which is close to 90% of GDP, according to the government. Farmers may be the most in hock with repayments topping 125% of income for the poorest, researchers calculate. They were offered a $3 billion loan swap in November, in another contingent liability masking the true public debt level currently reported at 45% of GDP.

The central bank has raised the alarm over state and private bank rural and small enterprise exposure as their share prices have dropped below the pre-May 2014 coup range. In the July-September quarter profit was down 25% and non-performing loans rose 40%. Big companies in turn are experiencing pain with the global demand slump and a $1.5 billion default by Bangkok-based Sahaviriya Steel was the worst since the late 1990s financial crisis. Monetary policy has been largely hamstrung by deflation and currency pressure keeping the benchmark interest rate on hold. The baht has depreciated modestly against the dollar in comparison with neighboring currencies, but bank deposits at home have shifted to dollars and Thai investors have moved cash into overseas assets. They allocated $1 billion mostly to debt instruments abroad in October, just as foreign portfolio investors cut their own capital outflows with the nascent improvement from fiscal pump-priming.


Economics czar Somkid has also signaled interest in joining the Trans-Pacific Partnership free trade pact as the regional ASEAN single market enters force at year-end, with post-election Myanmar a prospect for strengthened membership. The US lifted sanctions on Myanmar’s main port, which is controlled by a targeted business executive close to the military, for an initial six months with the peaceful result and parliamentary majority transition to Aung San Suu Kyi’s NLD party. Banks will now be able to provide trade finance without fear of violations, and international financial integration took another step with the formal opening of the Yangon Stock Exchange with minority Japanese ownership after two decades in preparation. Trading may start at the beginning of 2016 in a few companies, and Thai banks hailed the launch as a potential diversion for sour local credit and capital markets sentiment despite the junta’s recent budget sweeteners.

Gary N. Kleiman is an emerging markets specialist who runs Kleiman International in Washington, D.C.

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