2006 Thai coup's effect on financial markets?
By Jon Fernquest[Introduction|Vocabulary|Article]
[Reading Questions|Answers]
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That coups have a temporary effect on financial markets is to be expected.
What will happen in the coming days and weeks?
Will the coup succeed? How quickly will power be handed over to a civilian government? Will the scheduled elections for next month be held as planned? What kind of government will follow? Will the political impasse of the previous months finally be resolved?
Right now there are only questions, but as Time magazine observes for many it is somewhat of a 'festive coup' with most people expecting only peaceful change.
The BBC has a profile of the coup leader General Sonthi who is close to His Majesty the King. General Sonthi had his plan for talks with the rebels in the south rejected by Mr. Thaksin recently. Recent reshuffles in the armed forces also favored Thaksin loyalists over Sonthi supporters.
Today's articles are taken from today's breaking news. They report on the negative reaction of financial markets. Although in the short-term there may be some problems, in the long-term Thailand has a solid economy which has functioned quite well for many months with only a temporary caretaker government, so the future still seems bright.
Reading Questions
Here are some questions to guide your reading (See answers at end):[Check back shortly]
Bangkok Breaking News Article: September 20, 2006
New York stocks fall on Thai coup
New York prices: Dow Jones stock average down 14 points at 11,541.
Thai baht at 37.77 per US dollar on US money markets early today Thailand time, down 50 satang from Tuesday.
New York (Agencies)
Stocks dropped suddenly Tuesday after Thailand's military launched a coup against the country's prime minister.
Traders watching Thailand closely are certain to remember how trouble in the kingdom had worldwide implications in the past: The Asia currency crisis that erupted in 1997 began with the devaluation of the Thai baht, then snowballed into a currency crisis in emerging markets around the world.
The baht fell sharply Tuesday, as did Brazil's real, which also tumbled in the 1997 crisis.
Thailand, usually one of Southeast Asia's most stable countries, has been in a state of political flux this year after massive rallies forced Prime Minister Thaksin Shinawatra to dissolve Parliament.
Mr Thaksin, who was in New York attending the United Nations General Assembly, has faced calls to step down amid allegations of corruption and abuse of power.
The news hit the market on a day stocks had been drifting lower following a sharp drop in the pace of US housing starts in August. Housing starts fell 6 percent, twice as fast as expected. New housing construction notched its fifth decline in six months, hitting its lowest point in more than three years.
Baht records 4-year record fall
New York (Agencies)
The baht suffered its greatest fall in four years this morning after news reached currency markets of the coup against Prime Minister Thaksin Shinawatra.
The baht fell 1.3 percent to 37.77 per dollar at 4 p.m. in New York, from 37.29 late on Sept. 18, the biggest decline since July 2002.
Thai bonds and a New York-traded fund of the nation's stocks also declined.
Bloomberg news agency quoted Nick Bennenbroek, a vice president of foreign exchange research at Brown Brothers Harriman & Co. in New York: "It's an issue of confidence. I would tend not to downplay the impact this could cause on Thailand's financial markets."
"We can probably see further weakness in the Thai baht," Bloomberg further quoted Bennenbroek. "I would not be surprised to see a very significant drop in the equity markets."
Marc Faber, founder and managing director of investment firm Marc Faber Ltd. in Hong Kong, was also quoted by Bloomberg:
"It appears that it's a military coup to basically oust the prime minister, and the implications are not obviously overly favourable because it creates a lot of uncertainty. It is far from certain that the coup will succeed and if it succeeds, we don't know exactly what kind of government will follow."
Investors said the coup was unlikely to trigger declines in emerging-market securities as happened after Thailand's devaluation in 1997, when bonds, stocks and currencies across Asia tumbled and economies in Thailand, South Korea and Indonesia slipped into recession.
The risk of owning Thai government bonds jumped to a two-year high, according to traders betting on the creditworthiness of countries in the credit-default swaps market.
The price of the contracts rose to more than $47,000 from $33,000 today, according to HSBC Holdings Plc. The contracts, which pay investors $10 million in exchange for the bonds should the government default in the next five years.
Yield premiums on Thailand's 7.75 percent bond due in April 2007 compared with benchmark Treasuries rose 2 basis points to 60 basis points, the highest in a month, HSBC prices show.
Vocabulary (in discussion above)
launched a coup - when the army suddenly takes control of the government of a country (See Wikipedia on Coup d'état)
had worldwide implications - has effect on rest of the world (not just local)
Asia currency crisis - the 1997 financial crisis that led to Thailand and South Korea's currencies suddenly falling and a recession afterwards (See Wikipedia on Asian financial crisis)
devaluation - currency becomes less valuable, so products in country become cheaper for foreigners (See Wikipedia on devaluation)
snowballed into - (like a small snowball rolling down the hill, gathering more snow as it goes, and growing into a large snowball)
currency crisis - "when the value of a currency changes quickly, undermining its ability to serve as a medium of exchange or a store of value." (See Wikipedia)
emerging markets - countries that are between devloping and fully developed countries like Thailand and Malaysia (See Wikipedia on emerging markets)
tumbled - fall (in a disorderly way)
in a state of political flux - political changes are still happening, has still not settled down to a more permanent way of doing things
rallies - large meetings
dissolve parliament - end parliament
United Nations General Assembly - the main legislative and voting group of representatives from all the countries of the world in the United Nations
faced calls to step down - people asked him to resign, quit his job
allegations - accusations, statements that someone has done something wrong
notched - in small steps, like notches (like on the blade of a saw)
downplay - make a problem seem like it isn't serious
Answer Key:
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