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