O bservers 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 five 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 seven 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. Thaksin took a hardline stance, consistently refusing to engage in talks with insurgents. Following the coup, there is new hope that the issue will finally be resolved; retired general Surayud Chulanont, the newly appointed prime minister, has announced that the government would be open to talks with the insurgents. If both the Thai government and the insurgents can reach a lasting agreement, then a significant source of uncertainty for Thailand’s stability and success will have been eliminated.

General Surayud has also sought to allay concerns about his government’s monetary policies by appointing Pridiyathorn Devakula, the governor of Thailand’s central bank, as finance minister. Pridiyathorn built his reputation in 2004 by curbing lending at Krung Thai Bank PCL, a move that put him into direct conflict with Thaksin, who had promoted easy credit to bolster his political popularity. Easy credit has a poor history in Thailand; in July 1997, it led to a major devaluation of the country’s currency and caused the economic disaster know as the Asian Financial Crisis.

Popular support for the coup is currently strong, suggesting that much of the political turmoil surrounding Thaksin’s last months in office will be gone, at least temporarily. The coup also appears to have the support of Thailand’s King Bhumibol, who commands enormous respect within the country. The king endorsed the coup the day after it took place and has approved Prime Minister Surayud’s cabinet.

Nonetheless, the military government must remain committed to restoring democracy. If the new regime does not turn over power to a democratic government in good time, uncertainty in the country will only increase, once again harming Thailand’s economic prospects. The last military government implemented several highly successful social programs, but when the military leader of the coup, General Suchinda Kraprayoon, was appointed prime minister after elections in March 1992, hundreds of thousands of Thais protested what they saw as a de facto military dictatorship. Suchinda was forced to step down, and a democratically elected government soon took power. Suchinda’s example should serve as a warning to the new military government that prolonged authoritarianism will not be welcome, regardless of the economic prosperity it may bring.