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Thai markets have delivered a royal salute to Thaksin Shinawatra, who on Tuesday stepped aside as prime minister. The stock market, having lagged behind its neighbours in recent months, spurted 3 per cent – its biggest one-day gain in two years. The baht jumped 1.2 per cent in morning trading to a 12-month high.

That looks like a knee-jerk reaction. True, Mr Thaksin’s pledge – which follows months of political unrest sparked by the tax-free sale of his holdings in a local blue-chip telecommunications group – is a victory of sorts for his critics. But it is far from a regime change. Mr Thaksin will still head up the Thai Rak Thai (Thais Love Thais) party that virtually monopolises the legislature, thanks to a boycott by opposition parties of last weekend’s elections. Fresh elections could be a year away. The new interim prime minister, a former police general, is considered one of Mr Thaksin’s closest aides. In short, there is a fair chance Mr Thaksin will remain a political force, albeit behind the scenes.

From the economy’s point of view, moreover, stasis can be as detrimental as turmoil. Policy initiatives like large infrastructure projects face further delays, jeopardising a potential 1.7 percentage points of economic growth. Household consumption, already faltering, is unlikely to bounce back. True, external demand is probably enough to keep economic growth humming along somewhere shy of 5 per cent. But the higher estimates that once graced economists’ reports are now unlikely to be realised.

That makes yesterday’s optimism on the stock market look over-enthusiastic. Foreigners have continued buying throughout the anti-Thaksin protests and rallies, partly attracted by the country’s discount to its neighbours. But as Thailand’s relative charms fade, funds could swiftly reverse course. Investors should leave the celebrating to Mr Thaksin’s political opponents.

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