The reason for the Thailand September 2006 Coup?
Even before elements off the Thai army and police claimed they had taken control of Bangkok on Tuesday evening, while Prime Minister Thaksin Shinawatra was in New York attending the U.N. General Assembly, the country was facing an extended political crisis that had dented investor confidence in what had been one of Asia's brightest emerging markets.
In May, Thailand's Constitutional Court nullified April's general election--which returned former technology billionaire Thaksin and his Thai Rak Thai party to office--following accusations of electoral fraud. Opposition parties boycotted the polls in protest against what they say is the prime minister's corruption and abuse of power.
Mass protests and calls for the prime minister's resignation followed Thaksin's $1.9 billion sale in January of his family's stake in the telecoms firm Shin Corp. to Singapore's Temasek Holdings. Opponents complained that the sale was a tax avoidance transaction and that it passed control of one of Thailand's largest telecoms companies outside the country.
While the prime minister continued to run a caretaker administration ahead of elections originally planned for mid-October, those elections have already been once postponed, probably until November.
But Thaksin's likely participation means the prospect of a repeat of the protests that took place around April's elections. Thaksin's opponents believe he will again be able to rig the forthcoming election by buying votes in the countryside.
The group that appears to have taken control says it has done so to ensure law and order. It calls itself the Reform Group for Democracy. Its move came the evening before a large anti-Thaksin demonstration was being planned in Bangkok for the next day.
Many of Thaksin's opponents are close to the king, who plays an important political role in the country's constitutional monarchy and to whom the coup group says it is loyal. Many Thais have taken to wearing yellow shirts twice a week to show their loyalty to their monarch, and these have increasingly been seen as a symbol of protest against the government.
The military has said it would stay out of political affairs. Military coups were once common in Thailand, but for the past 15 years the country has been regarded as a beacon of democratic and economic freedom in the region.
Thaksin has also being fighting a separatist insurgency in the southern provinces, where Muslims form a majority. This could now lead to terrorist attacks spreading outside these provinces to the Buddhist north, taking advantage of the political crisis in the capital.
The insurgents have been hitting economic targets, including the tourism industry. Last weekend, a series of bombs killed four people, including one Canadian.
Infrastructure spending has slowed, braking the capital investment that has been driving growth. Annual economic growth, which peaked at 6.9% in 2003, has slipped: The government recently reduced its GDP growth forecast for this year to a range of 4.2% to 4.9% from an earlier 4.5% to 5.5%.
Foreign investors have already taken fright. Bangkok's stock market has fallen more than 3% over the last 12 months. Two closed-end Thai funds in New York fell more than that once news of the coup hit, and you can expect shares in Bangkok to fall sharply once trading resumes.
Before the latest events, Standard and Poor's had rated the country's long-term government bonds as BBB-plus, an investment grade, though in the lower echelons. The rating agencies have held their ratings stable, assuming the political situation would stabilize after the elections. That now looks less certain as investors reassess Thailand's longer-term political stability.
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