We live in interesting times

Initially the government did not expect that the protesters, consisting of people from different political “colours”, would be able to build up any significant numbers. But the government quickly changed its mind with the enforcement of the internal security law in an effort to prevent the worst from happening.

The amnesty bill has been brewing for a while. Most analysts have warned that if the government offers a whitewash to Thaksin and welcomes him home, there will be mass opposition rallies and possible clashes with the government. A recent video clip on YouTube threatening the life of Thaksin has altered the pace of Thai politics. In the view of some, the amnesty law must be passed to hasten the return of Thaksin.

On August 7, Parliament is scheduled to debate the proposed amnesty legislation. The authorities expect that protesters might surround the Parliament compound to block MPs from entering or getting out, hence the need for the enforcement of the internal security law to deter a mass gathering around the Royal Plaza and Rajadamneon Avenue.

We have to keep an eye on the Democrat Party to see how it reacts to the amnesty law. The party has been insisting all along that it does not agree with a law that would whitewash Thaksin or those who have found to have been involved in political violence over the past few years. During the parliamentary debate on the amnesty bill, the Democrats might stage a walkout.

What might happen during that time is anybody’s guess. 

If the government triumphs with the amnesty law, it would then push for passage of the 2013-2014 budget, amounting to Bt2.25 trillion. The budget debate is scheduled for August 14-15. After that, the government will try to pass another major bill into law – for Bt2 trillion in borrowing that would allow the Finance Ministry to create massive debt to invest in infrastructure projects.

It is very likely that at this stage, Prime Minister Yingluck Shinawatra, whose popularity is plummetting fast, might choose to dissolve parliament and call a snap election. With the Bt2 trillion borrowing in hand, the government is in a position to win in the next election and make a stronger comeback, with Thaksin casting a tall shadow over the new government.

That’s a scenario that the Pheu Thai Party would like to see.

At the same time, apart from the growing political risk, there is a danger of the Thai economy slowing down. Economic indicators in the second quarter showed negative growth in exports, consumption and private investment. Government expenditure got stuck in the bottleneck of the disbursement process. Going into the third and final quarters of 2013, there is a risk that the economy might soften further to make a 4-per cent growth projection another failed target.

Finally, one cannot rule out the risk from the US Federal Reserve’s possible tapering off its asset purchasing programme via its quantative easing (QE) money printing. The market consensus, in spite of doubts over the US recovery, is betting that the Fed will start to slow down its QE by US$10-$20 billion a month. This would effectively bring the Fed’s QE programme down from the current $85,000 billion a month. If that happens, a tightening in financial conditions will follow. There will be a global tightening, and this will lead to a reverse of capital from the BRICS countries as well as the emerging market economies, including Thailand. Thailand and other peripheral countries will face further capital outflow, resulting in an economic slowdown, weaker currencies and higher interest rates.

This is an interesting time, politically and economically, for Thailand and other emerging-market economies, which are going through a transition driven by global geopolitical changes.