Thai General Maps Return to Democracy

May 30, 2014, 1:29 p.m. ET

Thai General Maps Return to Democracy

By Jake Maxwell Watts and Warangkana Chomchuen

BANGKOK–Thailand’s army chief Friday asked the international community for time to repair what he described as a flawed democratic system and laid out a tentative road-map for returning an elected government to power after last week’s coup.

Gen. Prayuth Chan-ocha has come under growing pressure to outline a return to democracy in this country of 66 million people following May 22’s putsch, which saw Thailand’s army briefly detain key leaders of rival protest groups, censor media and tear up its constitution.

The U.S. and other foreign governments have urged him to allow elections to take place as soon as possible, while sporadic, small-scale protests in Bangkok and other cities have challenged the military junta’s legitimacy.

In a televised broadcast, Gen. Prayuth said that before polls are scheduled the army will lead a two-to-three-month reconciliation effort to help supporters of its ousted populist government and its conservative opponents to better understand each other after more than half a year of disruptive street protests.

“We understand we are living in a democratic world,” Gen. Prayuth said. “All we’re asking for is to give us time to reform to mend our democratic system and make it right, just, responsible and beneficial to all people.”

Gen. Prayuth said the junta will draw up a temporary constitution and assess political reforms designed to create a more stable environment–a process he said could take as long as a year. Once the army feels that the country’s rival factions will be able to accept the outcome of a poll, a general election will be held. He ruled out any possibility of amnesty for crimes committed during recent pro- and antigovernment protests.

The general warned that a ballot won’t take place if there are still protests and the country lacks what he called “a true understanding of democracy.”

The Thai army chief speech came as the military turns its attention to stabilizing the country’s badly shaken economy, which shrank 2.1% in the first three months of the year from the previous quarter.

So far, Gen. Prayuth’s administration has freed up funds frozen by months of political deadlock, among other things paying rice farmers who have been waiting to receive funds from an earlier subsidy program begun by allies of populist leader Thaksin Shinawatra, who himself was ousted in a previous coup in 2006.

Earlier Friday, some of Thailand’s main economic institutions outlined the framework for an ambitious plan to revive the economy. The Bank of Thailand, the Bureau of the Budget, the Finance Ministry and the National Economic and Social Development Board–all staffed by specialists in place before the coup was declared–outlined proposed budget targets and referred to delayed infrastructure spending plans.

The army will have the final say over government spending.

“The coup could benefit [the economy and investment], but it still depends on the situation,” said Mathee Supapongse, a senior director at the Bank of Thailand.

But he struck an optimistic tone.

“There is more clarity now about several projects that had been stalled. Many projects have begun to move forward,” he said.

Some economists called the agencies’ growth projections overly rosy.

“I think it is quite optimistic, even though next year’s growth is likely to benefit from a low base this year,” said Kasem Prunratanamala, head of research at CIMB Thailand. He forecasts 4% growth for 2015.

The agencies, in their advisory capacity under the military junta, proposed a new state budget of 2.6 trillion baht ($79.27 billion) with an expected deficit of 250 billion baht for the 2015 fiscal year beginning in October. The budget is nearly 3% higher than last year.

About 455 billion baht, or 17.5% of the total, has been allocated to state investment plans, which will include upgrades to the country’s transport infrastructure.

The agencies said their figures had been based on the assumption that Thailand’s economy will expand 6.3% in 2015, with inflation at 2.3%.

Economic activity remained sluggish in April, the Bank of Thailand said Friday. Businesses deferred investments in April, with manufacturing production falling 3.9% that month, year on year, while private investment fell 4.7%.

Gundy Cahyadi, an economist at DBS Bank in Singapore, said the military’s economic to-do list remains “daunting,” with considerable progress to be made winning back the confidence of tourists and repairing domestic demand, which is at a 13-year low.

The issue for many investors is about whether Thailand can put to rest the political divisions that have plagued the country for more than 10 years. One of the questions facing the country is whether it can reconcile the populist electoral appeal of Mr. Thaksin’s supporters, who have won every election in Thailand this century, with the concerns felt by many in Bangkok’s middle classes and traditional power centers in the armed forces and bureaucracy who worry about Mr. Thaksin’s continuing influence.

The former leader, a self-made telecommunications billionaire, is living overseas to avoid imprisonment on a corruption conviction he says is politically motivated. Mr. Thaksin’s sister, Yingluck Shinawatra, was ousted as prime minister by a Thai court earlier in May for improperly removing a senior civil servant and faces the prospect of criminal charges for her mishandling of the rice subsidy program. She denies any wrongdoing.

“Longer-term, it matters more to Thailand’s fundamental outlook how these civilian divisions are resolved than what the military did this week,” said Jan Dehn, head of research at Ashmore, a U.K.-based emerging markets fund manager.