FOCUS : Foreign Investors Keep Cool, Look to New Thai Leadership for Signals

The military jolted Thailand--one of the world’s fastest-growing economies--a week ago with a bloodless coup that swept the government of Prime Minister Chatichai Choonhavan out of power.

Foreign investors appear to be taking the changes in stride, especially because the military has appointed respected economists and banking experts as advisers and announced that there will be no dramatic changes in financial policies.

The military rulers appointed a prominent Thai businessman with strong ties to the West, Anand Panyarachun, as interim civilian prime minister. But a new interim constitution appears to weaken the new government’s promise of free elections by year-end.

Two market observers here shared their views with Elizabeth Lu on the business community’s mood and what military leaders should do to protect investor confidence. The interviews were conducted on Friday, a day before the new interim prime minister was appointed and the new interim constitution was published.

Kongkiat Opaswongkarn, managing director of Baring Research Ltd.:

Foreigners--not only American investors--are waiting to find out what the policy of the new government is. If everything remains the same, I don’t think foreigners will have a negative attitude.

Those who are experienced in the market understand it quite well. This sort of coup basically doesn’t change the lifestyle of the Thais. And the country itself is quite stable, because basically it’s run by the bureaucrats.

The military’s message was they would not intervene. They would let the stock exchange and the financial community function as usual, as if nothing had happened. The deregulation initiated by the Bank of Thailand will be implemented according to schedule. Capital outflow will not be controlled. They will let money flow in and out as freely as before.

The new government should push forward all the new infrastructure projects approved by the previous government. Foreign investors don’t want to see the projects delayed. That could make foreign investors quite nervous.

The military said they want to separate political influence from the bureaucrats. That’s quite good.

In the past, the bureaucrats were at the mercy of the politicians.

A clearer policy on the investment direction from the new administration would also be good. The previous administration was talking about scrapping the Board of Investment or lowering the role of the Board of Investment, but I think foreigners still want to have someone to talk to when they come to invest.

Long term, I see little impact from the coup. But short and medium term, it’s negative. It still takes awhile for foreigners to realize that nothing will change dramatically. Some of my clients are still buying in the stock market, despite the coup. Basically we have a few investors who understand the market very well, and they are not panicked. But a lot of them are basically sitting on the sidelines.

The coup was the worst possible outcome we could have. We have seen the worst, and the market did not react that negatively.

David Hendrix, vice president and country corporate officer at Citibank in Thailand and president of Bangkok’s American Chamber of Commerce:

Investors are less worried than they probably were a week ago. Most people are willing to give the leadership of the coup the benefit of the doubt.

Also, the economy will be managed by the technocrats. Thailand has a good history of being well managed by the technocrats. So the issue of politics will not be there to muddy the waters. People fail to realize that the coup was really just a change in government. It’s certainly not a coup you would expect in the Philippines or Bangladesh.

This is Thailand, and the coup just has a different characteristic. Some investors are probably nervous and are waiting before putting their money into the market. But as time goes on, and certainly when we get an interim government, those investments will be made.

In the stock market in the first couple of days we saw a few foreign investors sell but not move their money out of Thailand.

In other words, they kept money in the bank. And clearly there were some investors who were willing to buy but decided to put their decisions on hold for a while. But the stock market clearly is normal. There is no panic there, and that will encourage people in the future.

It’s hard to disassociate the coup from some of the other external factors. The resolution of the conflict in the (Persian) Gulf will clearly be a fillip to all investor activities. Some of the infrastructure projects will be reviewed, and I would say that the only question mark at the moment is how much delay some of these projects are going to encounter as a result of the coup.

The technocrats clearly see the need to improve the infrastructure, and they see the need for privatization of some of those infrastructure areas, whether it be the elevated railway, the expressway, whether it be the power-generation stations that EGAT (Electrical Generating Authority of Thailand) was going to allow private investors to build.

We’ve seen just a change in government and not a dramatic change in the whole process. This thing will be seen only as a hiccup once we get back to a democratic form of government near the end of the year.