Global Business 4th Edition by Mike Peng

Exercise 11

Political Rick of Doing Business in Thailand
Pawinee Changphao (University of Texas at Dallas)
Thailand has experienced a series of military coups that toppled democratically elected governments. Should companies in Thailand and those interested in doing business with it be concerned about political risk
Thailand, the second-largest economy in Southeast Asia, is a constitutional monarchy headed by King Bhumibol Adulyadej, Rama IX, with a parliamentary government. Since the coup d 'etat of May 22, 2014 (the 13th successful coup out of 22 attempts since the first written Constitution was issued in 1932),2 the 2007 Constitution was revoked, except for the second chapter, relating to the monarchy.3 As of this writing, Thailand has been under the rule of the military organization called National Council for Peace and Order (NCPO), led by the coup leader and prime minister General Prayuth Ghan-ocha.
Thailand's Economy
Thailand's economy is heavily export dependent, with exports accounting for more than two-thirds of its gross domestic product (GDP). Its main products exported are computers, rubber, deliver) trucks, refined petroleum, and gold. Thailand once experienced the world's highest growth rate during the period of 1986-1995. However, the 1997 Asian Financial Crisis led Thailand to sharply devaluate the baht against the US dollar and to seek over US$17.2 billion loans from the International Monetary Fund (IMF).4 The collapse of the Southeast Asian economic boom in 1997 led to public disillusion with free-market policies and encouraged the rise of populist Prime Minister Thaksin Shinawatra, a leader of then Thai Rak Thai Party. He was condemned by the urban elites and royalists, but enjoyed widespread support among the poor, particularly those in rural areas.
Thaksin and the 2006 Coup
Thaksin won a landslide victory in the 2001 general election. During Thaksin's first term (2001-2005), Thailand's economy regained momentum and the country paid off its IMF debt by July 2003 (two years ahead of schedule)-partly thanks to economic reforms continued from the previous government led by the Democrat Party. Thaksin's party won another landslide victory over the Democrat Party in the 2005 general election. His popularity largely derived from his populist policies aimed at Thailand's rural people, who made up the majority of his votes. The policies included, for instance, the 30-baht health scheme, which guarantees universal healthcare coverage for just 30 baht (about US$0.75) a visit at state hospitals; a four-year debt moratorium for farmers; a rice-subsidy scheme; one-million baht locally managed development funds for all Thai villages; and over US$500 billion invested in public infrastructure (including the new Bangkok International Airport).
However, Thaksin failed to serve his second term (2005-2009) in full. In 2006, in the midst of continuing violent unrest in the south and anti-Thaksin ("yellow shirt") street protests (the largest public rallies since 1992), a bloodless coup d 'etat led by General Sonthi Boonyaratglin ousted Thaksin and later a military junta led by General Surayud Chulanont ruled the country. Thaksin was accused of many sins, ranging from corruption and nepotism to gross incompetence in his management of the fight against Muslim insurgents. He was also accused of violating Article 112 of the Thai Criminal Code, which states that whoever "defames, insults or threatens the king, the queen, the heir-apparent or the regent" will be punished with up to 15 years in prison.5 Thaksin was also lambasted for his dominance of the airwaves through his communications group, Shin-Corp.-and then attacked for hugely enriching himself by selling it to Temasek Holdings, an investment company owned by the Government of Singapore
During his two terms, Thaksin promoted international business by following a privatization agenda. 'His government liberalized investment laws, which previously had severely restricted foreign ownership of strategic national assets, including those in the broadband communications industry. The new laws permitted up to 50% foreign ownership.7 H e signed free trade agreem ents (FTA) with Australia, China, India, New Zealand, and the United Arab Emirates, leading to an increase in trade volumes with the partners, especially in the energy-related industry and the broadband telecom munications industry
Although Thaksin lived in self-imposed exile in various countries since the 2006 coup d 'etat, his political influence remained strong through his proxies winning all the following general elections in 2007 and 2008. In 2011, Thaksin's sister, Yingluck Shinawatra, the leader of Thaksin-backed Plieu Thai Party, won elections by a landslide and became Thailand's first female prime minister. During her term, Yingluck not only continued her brother's populist policies, but also forcefully attempted to pass a bill granting Thaksin amnesty from convictions for corruption and abuse of powder. These political moves fueled mass street protests, leading to the shutting down of key areas of the capital and the debilitating confrontation between the northern "red shirts" (Thaksin's supporters) and "yellow shirts" (a royalist establishment) that control much of the capital and the southern provinces. In 2014, after nearly three years of the Yingluck government, another bloodless coup d'etat took over the country, aiming to not only resolve the political conflicts, but also erase the influence of Thaksin. Thus, the military junta appointed establishment figures to write a new constitution, containing ideally "fairness and wisdom" contents to accomplish their initial motivation of the bloodless army coup
The Generals' Challenge
The 2014 coup seems to be different from the 2006 coup, since the generals leading the 2014 coup were eager to carry on running Thailand under martial law, whereas those leading the 2006 coup were not. However, it could be a challenge for the coup leader and prime minister, General Prayuth Chan-ocha, to keep control of the country as well as to revive the economy when its economic growth was much less than that in 2013 (see Exhibit l).10 Despite economic policy confusion and uncertainties, Prayuth Chanocha repeatedly told foreign investors that Thailand was open for business. As a piece of evidence, in early November 2014, he dusted off plans to restrict foreign ownership and control of companies. This could be good news for foreign investors- at least for now. For companies in Thailand and those interested in doing business with Thailand, the question is: How can they cope with the political risk in the country
1)This case was written by Pawinee Changphao (University of Texas at Dallas) under the supervision of Professor Mike Peng. All information used is from the public domain. © Pawinee Changphao. Reprinted with permission.
2) Economist Intelligence Unit. 2014. Thailand: Country fact sheet. December 17.
3) Economist Intelligence Unit. 2014. Thailand: Country fact sheet. December 17.
4) International Monetary Fund. 2000. Recovery from the Asian Crisis and the Role of the IMF. www.imf.org/external/np/exr/ib/2000/062300.htm#box1, accessed December 17, 2014.
7) K. Rowley, 2006, The Downfall of Thaksin Shinawatra's CEO-State, APSNet Policy Forum, http://nautilus.org/apsnet/0634a-rowley-html/, accessed December 20, 2014.
8) S. W. Crispin, 2001, Power politics trump reform. Far Eastern Economic Review, September 27,2001. www.globalpolicy.org/component/content/article/213/45712.html, accessed January 7, 2015.
9) Economist, 2014, Thai politics: Delaying the day of reckoning, December 6: 45.
10) Economist, 2014, Thai politics: Delaying the day of reckoning, December 6:45.
Exhibit 1 The Generals' Challenge: Thailand's Annual GDP Change (%)
Source: Economist, 2014, Thai politics: Delaying the day of reckoning (p. 45), December 6: 45.

Does Thailand have a democracy