Observers around the world looked on with alarm on September 19, 2006, when Thailand's Prime Minister Thaksin Shinawatra was deposed by the military in a bloodless coup led by General Sonthi Boonyaratglin, the commander-in-chief of the armed forces. Since taking office in 2001, Thaksin had guided Thailand through years of impressive economic growth. But despite initial fears concerning Thailand's post-coup economic prospects, the military government has the potential to improve the Thai economy by continuing Thaksin's successful policies while resolving problems that Thaksin had failed to address.
At first glance, Thaksin's economic achievements seem difficult to surpass. The deposed prime minister had steered Thailand through five years of strong real GDP growth, which peaked at 7 percent in 2002. Per capita income rose by 38 percent from 2001 to 2005, and poverty, a grievous problem in northeastern Thailand, fell from 21.3 to 11.3 percent. Despite these impressive achievements, however, Thaksin had failed to address several issues that would have had harmful effects on the economy in the long run. In the last months of Thaksin's government, a rise in consumer indebtedness, popular discontent, and a Muslim insurgency in the south darkened Thai economic prospects. In particular, the Muslim insurgency has plagued Thailand's three southern provinces since 2001, creating significant instability and diverting the government's attention from implementing its economic and social development programs.
In light of these failures, the coup not only may maintain the country's current success, but may actually deliver Thailand a fresh opportunity to improve its growth and stability. The new government has pledged that it will continue to follow Thaksin's more successful economic policies. Near the top of the government's agenda is a focus on infrastructure, a hallmark of Thaksin's development programs that was popular among both Thais and foreign investors. Infrastructure projects, several of which began well before the coup, include the building of water management systems and new railway lines. The military government hopes that they will help to sustain Thailand's economic boom and maintain the country's competitive advantage over other Southeast Asian countries.
Thailand's economy may also improve if the new regime succeeds in areas where Thaksin failed. The military government has already made progress dealing with the Muslim insurgency, an issue that had plagued Thaksin throughout the second half of his administration. The former prime minister had handled the issue clumsily. For instance, shortly before an escalation in violence in 2004, Thaksin abolished the civilian agency responsible for the administration of the southern provinces, despite the fact that the agency had improved relations between local Muslims and the government. …