Thailand coup: Effect on the markets

 
Soldiers in Bangkok Soldiers patrol Bangkok after the army seized power

The minimal market reaction from Thailand's military coup is not what might be expected in a such a situation. Martial law usually make investors and businesses very nervous.

Yet, the Thai bhat has not moved by much versus the US dollar and the stock market is down some 2%. Asian markets have risen to about a five-month high despite the turmoil in Thailand. But, it is early days.

The paradoxical outcome is due in part to the frequency of coups in the country. This is the 12th coup d'état since the absolute monarchy was replaced in the 1930s, and there have been seven other attempts. In short, the military is a constant presence in Thailand.

A former central bank governor told me that when a coup happens, the civil servants pack up their offices and go home to await the announcement of the next government. It was his advice to avoid the streets where past coups have resulted in unrest and worse.

Bangkok's "Soi cowboy" district, 22 May A curfew led to the streets of Bangkok emptying

Worryingly, elections may not happen for another year - though there is pressure from the US and others for the democratic process to be restored quickly.

Unsurprisingly, some foreign investors have pulled their money out of the country, contributing to the prospect of a recession. The economy is already contracting after six months of political turmoil that culminated in Prime Minister Yingluck Shinawatra being ousted and martial law being imposed earlier this week.

At that time, the ratings agency Moody's warned of a negative impact. But another ratings agency - Fitch - did not view the sovereign's credit rating as negative since the situation may end the political stalemate. This latter view also explains part of the market reaction thus far. It is, nevertheless, a troubling position for a country to be in.

It is not the only impact. The important tourism industry, which accounts for nearly one tenth of GDP, will likely be affected. Travel advisories have been issued from neighbouring Singapore and Malaysia already.

Usurping the democratic process, no matter how frequently it has been done, won't inspire confidence over the longer term. Evidence from around the world suggests peace is key for economic growth.

 
Linda Yueh Article written by Linda Yueh Linda Yueh Chief business correspondent

Why markets fear Argentina's debt crisis

If Argentina defaults on its debts again, there could be major repercussions for the global bond market.

Read full article

More on This Story

Comments

This entry is now closed for comments

Jump to comments pagination
 
  • rate this
    0

    Comment number 10.

    The West seems to have little understanding as to what this "crisis" is really about. To put it simply, the fight is between the rural people (have not's), who by the way supported Thaksin and the better off in Bangkok (the haves). Corruption is a way of life, without it the country would grind to a halt due to bureaucratic red tape. This coup will do nothing to fix the underlying problem,

  • rate this
    -1

    Comment number 9.

    In this instance going back 20 years (pre-Thaksin) would be no bad thing. OK, so there may have been corruption then but Thaksin has taken it to a new level.
    Honestly, would you really want the likes of Chalerm Yubamrung and his ilk as part of you're ruling government ?

  • rate this
    -1

    Comment number 8.

    This coup will likely put Thailand's development back 20 years, but at the end of the day, it is the death throes of the corrupt ruling classes and their greedy royal patrons. The people will not accept the loss of democracy so easily this time and there really isn't anywhere else for the country to go, a military junta, in Thailand in 2014, not sustainable!

  • rate this
    0

    Comment number 7.

    What with this, Syria and the Ukraine the world seems to be moving backwards.

  • rate this
    0

    Comment number 6.

    tony lei, If I was a destitute rice farmer I would not be holding my breath on any payments promised by Yingluck

 

Comments 5 of 10

 

Features & Analysis

From BBC Capital

Programmes

  • A man holds a sign which reads Bring Back Our GirlsHARDtalk Watch

    Why there is still hope and optimism for the rescue of Nigeria’s kidnapped schoolgirls

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.