POLITICAL REACTION TO THAI FINANCIAL DEBACLE

C O N F I D E N T I A L SECTION 01 OF 02 BANGKOK 007508

SIPDIS

SIPDIS

E.O. 12958: DECL: 12/20/2016
TAGS: PGOV ECON EFIN TH
SUBJECT: POLITICAL REACTION TO THAI FINANCIAL DEBACLE

REF: A. BANGKOK 7484 (MARKETS FALL)


B. BANGKOK 7285 (GOSSIP ROUNDUP)

Classified By: Charge d'Affaires Alex A. Arvizu, reason: 1.4 (b) and (d
).

SUMMARY
--------------


1. (C) Politicians from the Thai Rak Thai (TRT) and Democrat
parties vehemently complained about the RTG's decision to
impose capital controls on December 19 (ref A). Denouncing
the decision to restrict foreign repatriation of funds, our
contacts nevertheless believed that the debacle would not
significantly tarnish Prime Minister Surayud Chulanont,
although they noted his administration continues losing its
luster. A leading Chart Thai Party figure declined to
criticize the administration. The stock market plunge of
December 19 appears to have dealt a body blow to the
political ambitions of Finance Minister M.R. Pridiyathorn
Devakula, who had sought to position himself as a leading
politician after the next elections. End Summary.

CHART THAI STANDS BY INTERIM ADMINISTRATION...
-------------- -


2. (C) We spoke on December 20 with Chart Thai Deputy Leader
Weerasak Kowsurat, to solicit his views on the sudden
decision to impose limitations on the repatriation of foreign
capital. Noting that reporters were interviewing Chart Thai
Party Leader Banharn Silapa-Archa on the subject even during
our phone conversation, Weerasak declined to go beyond Chart
Thai's talking points, which avoided criticizing the cabinet.
Weerasak said the administration had to act in order to
exert control over overseas investors with "short-term
capital." He declined to characterize the Bank of Thailand
(BOT) policy as a mistake, saying it had sent a strong and
necessary signal to both foreign speculators and to the Thai
exporters, who had suffered because of the Baht's
appreciation.


3. (C) Weerasak expressed gratitude that the RTG had reacted
quickly to amend the BOT policy. Weerasak highlighted the
ongoing rebound in the Stock Exchange of Thailand index,
claiming the situation would likely soon return to normal.
He appeared to give Finance Minister Pridiyathorn credit for
being willing to amend the policy which he had defended
publicly less than a day before. The Thai public would
understand that people can overdose on good medicine,
Weerasak said -- the important thing was that the economic
doctors were able to recognize their dosage had been too
strong.

... BUT OTHERS LASH OUT
--------------


4. (C) Former Democrat Party (DP) legislator Pornwud Sarasin,
however, bluntly characterized the sudden imposition of
capital controls as "the biggest disaster." (This
characterization echoed public complaints of DP Deputy Leader
Korn Chatikavanit.) Noting he had just met with the
Assistant Governor of the BOT, Pornwud complained that the
government had to stabilize the currency, not generate
financial shock waves. "If they keep doing this," Pornwud
said, "the government won't last." People in elite circles
were increasingly complaining about the Surayud
administration, with particular concern expressed about
Pridiyathorn. Whereas he previously appeared as a "fresh
face" and people placed their hopes on him, now people were
doubting his ability to perform his duties. However, Pornwud
opined that Surayud still enjoyed a reasonably high standing,
and the administration as a whole should have a few more
months to prove itself.


5. (C) With equal frankness, former Thaksin cabinet member
and Thai Rak Thai Spokesman Suranand Vejjajiva labeled the
BOT move as a "big fumble" which "destroys the credibility of
the Bank of Thailand and the Ministry of Finance." The
administration mishandled this matter, taking one of the
strongest possible steps without having worked out the
implications. If the government was willing to move so
precipitously on this issue, Suranand said, one could not
easily predict in what manner they might address other
important developments.


BANGKOK 00007508 002 OF 002



6. (C) Suranand said that most Thais in political circles
would not place responsibility for the events of December
18-19 on Prime Minister Surayud. It was widely known that
Surayud had delegated authority in economic matters to
Pridiyathorn. Suranand told us that he (Suranand) had
checked with members of Surayud's staff and confirmed Surayud
had not been aware of the BOT's plans before the Bank took
action.


7. (C) Former TRT Deputy Spokesman Pimuk Simaroj told us on
December 20 that members of the political class were
questioning whether Pridiyathorn should resign. Like our
other contacts, he saw Pridiyathorn, rather than Surayud, as
responsible for the debacle. He bitterly denounced
Pridiyathorn's flip-flop, noting that some investors had sold
stocks in the afternoon of December 19 after hearing
Pridiyathorn announce the government would not reverse its
policy, only to hear his announcement after the market's
close that the BOT would loosen its newly-imposed
restrictions. Nevertheless, Pimuk believed the public
remained fairly supportive of -- or at least open-minded
about -- Surayud's administration. The media's reaction to
the stock market plunge would have been significantly harsher
had Thaksin still been in office.

I COULDA BEEN A CONTENDER...
--------------


8. (C) Pridiyathorn -- once rumored as a possible successor
to Prime Minister Thaksin, when the latter was in caretaker
PM status -- reportedly had a strong interest in remaining
politically prominent after the interim administration. (Ref
B reported his recent lobbying to assume the top position in
the Democrat Party.) He suffered a dramatic loss of face at
the end of November, however: after advocating legislation
regulating a government-run lottery, he bowed to pressure
from opponents in the parliament and withdrew the bill. Now,
having cost the investing class dearly, sent shock waves
through regional markets, and damaged Thailand's
international credibility, Pridiyathorn appears more
thoroughly discredited. As if he did not have enough on his
plate, Prime Minister Surayud now will have to determine how
to react to his principal economic Deputy's glaring failure.
It is unclear whether the Prime Minister will strip
Pridiyathorn of certain responsibilities or force him out of
the cabinet.
ARVIZU