Thai government must keep its word

After sweeping into power last week, Yingluck Shinawatra must deliver on her election promises if recent signs of stability in Thailand are to be maintained.

Yingluck Shinawatra, Thailand's next leader, is a sister of the exiled former prime minister Thaksin Shinawatra. Nicolas Asfouri / AF

Thailand's political system is complicated and chaotic, but helpfully colour-coded too. Last week the colour turned a bold red after Yingluck Shinawatra's Puea ThaiParty notched up a powerful win in parliamentary elections and the Thai people began to think that after six years of political uncertainty some stability might be on the cards.

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Back to business

This would also help to keep the economy on track.

The market reaction to the 44-year-old businesswoman's win was strongly upbeat. The value of the baht rose and the local stock market gained 5 per cent. On the streets of Bangkok there was general relief that things could be settling down and that the government could start delivering on promises to boost economic growth and tackle inflation.

The shadow on this picture, and this is a scenario that could overshadow Thailand's efforts to move on in the next few months, is the fact that Ms Yingluck is the sister of Thaksin Shinawatra, the exiled former prime minister who lives in Dubai, but has made it clear he intends to come home at some point. He faces jail on graft charges if he comes back, and while the feeling is that his sister - whom he has described as his "clone" - will secure him, his return could reawaken all kinds of factional tensions.

"We hope that the new government will not create a new problem for the nation by proposing the amnesty agenda. The government cannot create reconciliation if the conflict still exists, or is accelerated," warned Dusit Nontanakorn, the chairman of the joint standing committee on commerce, industry and banking.

It has been an eventful time since the military coup five years ago that unseated Mr Thaksin. Ms Yingluck will be Thailand's first woman prime minister, but she will be the sixth person to hold the job in five years, and she will take the reins just over a year after 91 people died in political violence on the streets of Bangkok.

The prospects for stability were given a major boost when Ms Yingluck announced she would include five parties in her coalition government.

Her Puea Thai Party took a majority of 265 seats in the 500-seat lower house of parliament in the elections last Sunday, but by bringing on board different factions and announcing a broad 299-seat coalition, Ms Yingluck broadens the mandate and gives her government a more solid base of support.

The Thai economy has a remarkable ability to weather political crisis, even to thrive in times of adversity.

Last year's street violence between the Red Shirt supporters of Mr Thaksin and government supporters did not prevent the economy growing by 8 per cent.

However, probably the biggest challenge she faces is tackling inflation, which is on the march, rising to 4.2 per cent in May.

And she will have to deliver on some of her election promises, such as big social welfare handouts, raising the minimum wage and implementing big spending on infrastructure.

Investors are looking anxiously to see what happens when the new government meets its promise to increase rice prices to help farmers, which would increase global food costs.

Talking to taxi drivers and building workers last week - the core support for Ms Yingluck's party - stopping price rises is a key request.

Siriwan Naklaaw, one street food seller, said rising costs were hurting her business, but she couldn't raise her own prices as it would drive customers away.

"In the past, when her brother was in power, prices weren't so high. She has already said things are going to get cheaper. I hope she delivers on that promise," Ms Siriwan said.

Ms Yingluck has not really given any indication how she will keep prices down and boost spending. The Bank of Thailand has urged the new government to stick to promises to balance the budget by 2015, but more spending is not a way to do that.

Standard Chartered is keeping its rating on Thai bonds at "underweight" because it is worried this expansionary policy could cause a serious rise in spending and push up inflation.

In the month leading up to the elections, foreign investors withdrew 57 billion baht (Dh6.92bn) from the debt market and 17bn baht from the stock market amid fears that uncertainty would prevail. There were signs last week that they were coming back, however, with overseas investors channelling 10.7bn baht into the stock market.

There are other clouds on the horizon. If Mr Thaksin is given an amnesty, the Yellow Shirts, a broad alliance of monarchists and Bangkok businesspeople, could stage a repeat performance of their airport occupation in 2008, which brought Thailand's tourism industry, a major factor in the country's economy, to a halt.

The new government is going to have to do a lot to prove it is serious about keeping Thailand on a strong growth track. Another bout of political instability could put too much pressure on the economy this time.