Next legislative elections are planned in July 2017 whatever the results of the constitutional referendum expected this summer. The Constitution Drafting Committee’s (CDC) new draft would give the military junta a key role in a five-year transition phase after the elections, with freedom of action to maintain law and order and the power to reshuffle governments.

Impact on country risk

Democracy and Shinawatra’s partisans (the so-called red shirts) will lose out from the change of Constitution. Although ousted former PM Shinawatra’s supporters are likely to vote against this new text, the military junta is unlikely to relinquish power in order to ensure a smooth royal transition when the old king passes away. Therefore, the outlook is gloomy on the political and economic side. First, politically, as the Senate would be fully appointed, the PM no longer elected and the government weak. Thailand is taking the reverse orientation of its neighbour Myanmar and will be threatened by persistent political polarisation, unrest risks and social-political instability since the majority is being deprived of their representative. The military seems indeed determined to no longer leave full power to a civilian government. Since the military coup in spring 2014, political instability has much appeased under the military rule but might re-appear with the next major upcoming tests, namely the referendum, the pending sentence in former PM Yingluck Shinwatra’s trial – where she faces a ban from politics and even a politically risky prison sentence in the failed ‘rice management scheme’ – and the long-promised 2017 elections (potentially still subject to delays) especially as any party close to the Shinawatra clan is about to win. Secondly, Thailand’s macroeconomic performances are harmed by a poorer external environment but also penalised by political uncertainties and the lack of continuity in economic policy. This affects public expenditures, exacerbates capital flight – in the context of investor risk aversion – and depreciating pressures on the baht. A recovery plan focussed on infrastructure development and a stronger tourism sector should boost growth as from this year. Another issue could come from hindered contract continuity under the future constitution where the government commitment will be weakened which could hit future FDI inflows as seen last year. Analyst: Raphaël Cecchi, r.cecchi@credendogroup.com