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06BANGKOK5797 LIMITED ECONOMIC FALLOUT FROM COUP

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“79058″,”9/20/2006 9:06″,”06BANGKOK5797″,

 

“Embassy Bangkok”,”UNCLASSIFIED//FOR OFFICIAL USE ONLY”,”

“,”VZCZCXRO8434

PP RUEHCHI RUEHDT RUEHHM RUEHNH

DE RUEHBK #5797/01 2630906

ZNR UUUUU ZZH

P 200906Z SEP 06

FM AMEMBASSY BANGKOK

TO RUEHC/SECSTATE WASHDC PRIORITY 1763

INFO RUCNASE/ASEAN MEMBER COLLECTIVE PRIORITY

RUEHBJ/AMEMBASSY BEIJING PRIORITY 2995

RUEHBY/AMEMBASSY CANBERRA PRIORITY 6071

RUEHKO/AMEMBASSY TOKYO PRIORITY 8352

RUEHCHI/AMCONSUL CHIANG MAI PRIORITY 2462

RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY

RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY”,”UNCLAS SECTION 01 OF 02 BANGKOK 005797

 

SIPDIS

 

SENSITIVE

SIPDIS

 

STATE FOR EAP/MLS AND EB

COMMERCE FOR EAP/MAC/OKSA

TREASURY FOR OASIA

STATE PASS TO USTR FOR WEISEL

STATE PASS TO FEDERAL RESERVE SAN FRANCISCO FOR DAN FINEMAN

STATE PASS TO FEDERAL RESERVE NEW YORK FOR MATT HILDEBRANDT

 

E.O. 12958: N/A

TAGS: ECON, EFIN, TH

SUBJECT: LIMITED ECONOMIC FALLOUT FROM COUP

 

BANGKOK 00005797 001.2 OF 002

 

1. (SBU) There is near universal agreement among Thai and US

businesspersons and RTG civil servants with whom we have

spoken that any economic fallout from Thailand\’s military

coup will be shallow and short-lived. Banks tell us that they

have very few clients asking to exit baht-denominated

portfolio investment while a number are actually seeking to

buy on any further baht or Stock Exchange of Thailand

weakness. As one bank executive told us \”if the baht goes

down more, many foreign hedge fund will see this as a

short-term opportunity to buy cheap Thai stocks at a further

discount.\” Most expect tomorrow to bring a decline in the

value of the baht and Thai equities to be quickly followed by

a rally back up, perhaps above previous levels. One analyst

noted that following the February 1991 coup, the Stock

Exchange index fell 8 percent on day one following the event,

but gained 19.5 percent in the following three weeks. The

Exchange reports that they plan on operating normally

tomorrow.

 

2. (SBU) We spoke to the Governor of the Bank of Thailand by

cell phone as he was returning to Bangkok from the Bank/Fund

meetings in Singapore. He said that the baht had depreciated

from 37.30/$ to 37.95/$ as news of the coup spread, but

quickly strengthened to 37.60-37.70 as Thai exporters took

advantage of the situation to convert dollars. He said the

BoT had not intervened in the currency markets and, while

prepared to do so, had no expectation that it would be

necessary. He also advised that the Bank stood ready to add

liquidity to the banking system if such action were

necessary. In a subsequent conversation, the Assistant BoT

Governor for Financial Institutions said that in his survey

of banks there was no indication of any expected increase in

cash withdrawals or demand for foreign currency and expects

banks to reopen tomorrow. At foreign exchange kiosks open

today business has been slow, presumably because of a decline

in arriving tourists and an expectation among consumers that

the baht will be low

er tomorrow. The price on Credit Default Swaps which

increased from US$35,000/contract to US$55,000 yesterday is

reportedly back below US$40,000 this afternoon.

 

3. (SBU) An official from the Federation of Thai Industries

explained that the coup was \”good news for business\” because

\”everyone is tired of all the political fighting.\” He added

that he expects a caretaker government to be named soon that

will be comprised of highly qualified technocrats \”who could

make decisions.\” Dr. Pichit Likitkijsomboon, an economics

professor at Thammasat University, said the military was not

well informed on economic issues and did not expect them to

make any radical changes that would affect the long-term

investment environment. The Deputy Director General of the

Fiscal Policy Office of the Finance Ministry echoed this

view, recalling that after the 1991 coup, the interim

government pushed through regulations that had long been

bottled up in the parliament of the bureaucracy. The

Executive Director of the American Chamber of Commerce in

Bangkok advised us that some foreign companies had not opened

today due to uncertainty as to how martial law would be

implemented but that they

had no particular concerns about business conditions going

forward. Thai exporters with whom we spoke were positive on

the political developments, saw no real downside to their

export business and looked forward to greater economic

stability. They were concerned about the short-term impact

on the domestic market, but believed the impact would be

minimized if the military executed a quick transition to

civilian leadership.

 

4. (SBU) The biggest caveat in this rosy scenario is if

violence breaks out between Thaksin supporters and

coup-backers – a possibility that seems unlikely but cannot

be dismissed. Such an event would likely depress confidence

for a far longer period and negate the relief felt by many

that the political battles of the past year are now over and

everyone can focus on their jobs, including government

bureaucrats. Violence would also seriously impact the

important Thai tourism industry, a sector that contributes 6

percent of total Thai GDP. Barring the outbreak in violence,

 

BANGKOK 00005797 002.2 OF 002

 

however, the feeling among most Thais is that overall

uncertainty is reduced because of the coup, and less

uncertainty is better for business. While all the key credit

rating agencies now have their rating on Thailand under

review, it appears that they will be little changed.

 

5. (SBU) Comment: The optimism of the business community,

even in the face of martial law, is striking. One foreign

brokerage has actually recommended a double-weighting for

Thai assets in the wake of the coup. Most expect a knee-jerk

decline in markets tomorrow morning followed by a rapid

recovery. The real question is how the economy reacts over

the next year. Will the apparent approval of the coup among

consumers and business result in increases in domestic

consumption and private investment? Will an interim

government be able to make some of the infrastructure

investments that have been on hold for the past year? The

answers to these questions will determine whether Thai

economic growth remains sluggish over the short-medium term.

BOYCE

Written by thaicables

July 13, 2011 at 5:48 am

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