Wed, 05 Apr 2000

Thai outlook positive amid political turmoil

By Stephen Collinson

BANGKOK (AFP): Thailand's economic recovery will survive the trauma of the scandal which forced the resignation of a key senior minister, but mounting political uncertainty could stymie firms looking to fund expansion on the stock market, analysts say.

The stock market absorbed the resignation of powerful Interior Minister Sanan Kachornprasart last week without serious consequences but with elections looming before November more political uncertainty could further damage limp market sentiment.

ABN AMRO Securities analyst Paibool Rachniyom said investors sold shares but in low volumes after the resignation announcement last Wednesday.

"The interior ministry position is not a key cabinet position as compared to the finance minister, whose resignation would undercut the market," he said.

But the scandal over a falsified statement of Sanan's assets thickens the political mix and throws predictions that Prime Minister Chuan Leekpai will not hold elections until August into doubt.

"Sanan's indictment for alleged fraud may well precipitate an earlier (election) timetable as the Democrats scramble to contain the damage," a statement issued by SG Asia Credit said last Friday.

Even though underlying market fundamentals are not likely to be adversely affected by political events, the prospect of an early poll could increase market volatility and may scare dominant retail investors away.

Firms wanting to tap the market for funding could also be hit as foreign investors remain cautious, the statement said.

The stock market, despite lax sentiment brought on by the absence of glamourous Internet plays wowing investors in places like Hong Kong and Singapore, has been one of the few sources of funding for companies wanting to expand or recapitalize large debts.

Banks are still struggling to come to terms with massive non- performing loans, and are unable to offer significant lending, a substantial brake on recovery.

In the long term, many observers feel that sentiment on the Thai market can only improve, especially given the recent landmark ruling that the country's most indebted firm, Thai Petrochemical Industry, is insolvent -- clearing the way for debt restructuring across the economy.

Many here see the Sanan resignation as a watershed for efforts to rid Thai politics of the corruption and shady dealings which have scarred public life for decades.

"If the Sanan case affects the market at all, it will be positive, because it shows more open governance, a crackdown on corruption, that Thailand is not ruled by the same faces any more," said Philip Atkins of Seamico Securities.

"As long as the corruption allegations do not affect important people in the finance ministry or the Bank of Thailand, it will not be a consideration for investors," said another analyst.

SG Asia Credit predicted that election-related volatility will "be an opportunity rather than a threat for the long-term investor."

Whatever the election outcome, Thailand will have a multi- party coalition government led either by the Democrats or the new Thai Rak Thai Party (TRT), headed by tycoon Thaksin Shinawatra, the statement said.

"In the former case, Democrat policy continuity would be assured and in the latter, investors can still expect generally business-friendly policy from the TRT party."

Thailand has spent the last two years battling back from the economic turmoil set off by the baht plunging against the dollar in 1997.

Figures last Friday showed the recovery gathering pace, led by soaring exports and manufacturing output.

Thailand has already adjusted its economic growth targets upwards to 4.5 percent this year on the back of surging exports as the recovery gathers pace.