Thailand’s Paetongtarn suspended as PM, deepening political crisis

Investing.com -- Thailand’s Prime Minister Paetongtarn Shinawatra was suspended from her duties Wednesday after the Constitutional Court agreed to consider a petition accusing her of dishonesty and ethical breaches.

The suspension adds to the political instability that has plagued Thailand for decades and threatens to further weaken its struggling economy.

Deputy Prime Minister Suriya Jungrungruangkit from Paetongtarn’s Pheu Thai party has assumed a caretaker role while Paetongtarn remains in the cabinet as culture minister following a reshuffle.

The case against Paetongtarn stems from a leaked phone call on June 15 with Cambodia’s former prime minister Hun Sen that was meant to ease border tensions. During the conversation, she appeared to criticize a senior Thai military commander, sparking backlash in a country where the military maintains significant influence.

This political crisis deepens after the Bhumjaithai Party, the second largest in the coalition, withdrew from the government last week, leaving the administration with a very small majority. Analysts suggest Pheu Thai could potentially withdraw from the coalition in protest, which might trigger new elections. A military coup also remains a possibility if the situation deteriorates further.

Thailand has experienced two military coups in the past two decades and has now seen six prime ministers removed before completing their terms. This persistent instability has been identified as a key factor in Thailand’s underwhelming economic performance.

The current political turmoil is expected to depress business and consumer confidence at a time when the economy already faces challenges from slowing exports and weak consumption. Any escalation leading to widespread demonstrations or military intervention could also harm the crucial tourism sector.

The Bank of Thailand maintained interest rates at its recent meeting, but some analysts predict further rate cuts, potentially lowering the policy rate from 1.75% to 1.25% in response to growing downside risks to economic growth.

The leadership vacuum may also complicate Thailand’s efforts to secure a free trade agreement with the United States before July 8, when a 90-day tariff pause expires. Thailand faces a potential 36% "reciprocal" tariff if no deal is reached. The ongoing uncertainty could also reduce Thailand’s attractiveness to companies seeking manufacturing alternatives to China.

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