Thailand: A troubled change of power,
by Harrison Cheng.
Political instability in Thailand will increase in 2017 on the back of a royal transition and general elections scheduled late in the year. The passing of revered King Bhumibol Adulyadej in October 2016 will complicate the operating environment for years to come. The security environment and the regulatory landscape will also become more difficult to navigate, particularly for international companies. The accession of King Vajiralongkorn, a deeply polarising figure, is unlikely to act as a balm on any of these potential irritants.
Potential for unrest
While Thailand has been relatively calm since the military coup of May 2014, the likelihood of large-scale unrest will grow in 2017 if certain triggers are tripped. Although foreign businesses are unlikely targets, the incidental risks are potentially severe. Previous episodes of mass street unrest have been marked by violent confrontation among security forces and rival protest groups, arson and low- to medium-grade bomb attacks.
A delayed election is the most likely trigger for widely backed anti-junta protests in 2017. The middle classes in Bangkok who supported the 2014 coup have so far tolerated military rule, but are unlikely to do so indefinitely. They have backed a new junta-designed constitution mainly because they believe it will facilitate a quick return to democratic processes. Moreover, the dubious reputation that King Vajiralongkorn acquired while Crown Prince means that any royal blessing for extended military rule will have limited legitimacy.
Should protests materialise, they would be joined by ‘red shirt’ supporters of former prime ministers Thaksin (2001-06) and Yingluck Shinawatra (2011-14) and their party, Puea Thai. (Puea Thai was in power until it was ousted in the 2014 coup.) The ‘red shirts’ would feel particularly aggrieved if an ongoing corruption trial moved closer to arresting or imprisoning Yingluck, or if the courts ordered the dissolution of Puea Thai ahead of elections.
Even if elections are held as planned, the potential for political unrest will remain. The new constitution will severely restrict the power of elected governments to debate and pass regulatory reforms without the military’s tacit consent; elected lawmakers will attempt to break these executive and legislative shackles. They may do so by holding street campaigns to galvanise public pressure for constitutional amendments. The ruling establishment is likely to push back by activating the protest networks responsible for the anti-government protests in 2013-14 that paralysed Bangkok. Another cycle of instability is likely to follow.
The new king’s ascension will pose further security risks – albeit indirect ones – for businesses. This could take the form of tacitly backed protests or anonymous bomb attacks in Bangkok. Among the groups likely to back such tactics are elites in the ruling establishment. They fear being marginalised in the post-Bhumibol landscape, and may send a warning shot to the new king. Damaging revelations surrounding the new king or junta figures would further feed public discontent and the likelihood of public protests.
Rising regulation and contract instability
Greater regulatory challenges for foreign businesses are also likely in 2017. While the government remains pro-business and pro-investment, it is also keen to score political points with local businesses ahead of elections. Some junta figures intend to run for office, which explains their tough rhetoric in 2015-16 on enforcing laws to root out illegal and unfair business practices that harm local companies. Foreign companies in the tourism, retail and hospitality sectors are more exposed to risks of state scrutiny and official inspections. These businesses will face a greater burden of proof to show they are following the rules, which state officials are likely to interpret more strictly in the current environment.
Foreign companies that have brokered contracts with the ruling junta should be aware of the increased potential for contract revisions, suspensions and delays in 2017. The current military clique’s concentration of political power and commercial influence is a source of substantial resentment among rival military factions. Now that this clique has lost the protection offered by Bhumibol, rival factions will be more aggressive in lobbying for greater benefits from state contracts with foreign businesses. The junta has a strong incentive to accommodate them to maintain internal military unity, at least in cases where its interests are not seriously affected. Contracts in the telecoms, energy, power, oil and gas, infrastructure and mining sectors face greater exposure in this regard.
Energy projects will also have to contend with the threat of state-ordered suspensions before elections. The junta is keen to avert a backlash at the polls. This means it is likely to delay controversial projects to appease angry local communities concerned about environmental damage. The junta in May 2016 ordered the shutdown of the country’s largest operating gold mine following local protests because it was keen to ensure a successful constitutional referendum in August 2016.
Foreign companies are likely to find Thailand a far more complex theatre to navigate in 2017. Bhumibol’s passing has opened up a large power vacuum in Thai politics, and several centres of influence are already beginning to position themselves to fill that space. The contest for power has the potential to disrupt business operations on many fronts in the year ahead.