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Land of the free still trapped in political turmoil

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In Brief

Thailand’s economy began 2013 with initial forecasts for yearly growth ranging between 4.5 per cent and 5.5 per cent. The country had recovered from the 2011 flooding and the stock market had enjoyed a sharp rise since 2012. External demand was expected to improve thanks to signs of an upturn in the United States and Japan. General sentiments were high, although concern over domestic consumption grew out of rising household debt.


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Capital inflows in early 2013 caused the baht to appreciate and reach its peak in April. This affected export recovery and caused Thailand’s highest current account deficit since the Asian financial crisis, reaching US$3.3 billion. The central bank immediately reacted by lowering its policy rate and was prepared to introduce other capital control measures. The government was poised to introduce measures to alleviate the impact from exchange rate fluctuation, especially for small and medium enterprises. Yet the baht weakened soon after as the US Federal Reserve announced its planned tapering of quantitative easing, which also triggered capital outflows.

In the second quarter of 2013, the overall outlook dampened. Thailand’s economy started entering technical recession, with quarterly GDP growth of 2.9 per cent, which was lower than expected. Government investment was delayed. Private investment sharply dropped. Imports of capital goods and raw material fell sharply, while exports experienced a weak recovery. Private consumption contracted; inflation was subdued. Government bodies started to revise down yearly GDP forecasts to 4.2 per cent. The feeling of mistrust toward the Yingluck government accumulated again, as a conversation between exiled former prime minister Thaksin Shinawatra and Deputy Defence Minister Yuthasak Sasiprapha was leaked, revealing an alleged plan to push through cabinet the amnesty bill, with support from the National Security Council. The conversation also seems to show Thaksin’s involvement in the appointment of high-ranking officials, as well as the country’s investment in Myanmar.

The Thai economy in the third quarter of 2013 increased sluggishly by 2.7 per cent after a decrease in domestic demand. Household consumption dropped by 1.2 per cent due to declining consumption of durable goods, particularly motor vehicles, and decelerating farm income due to a slowdown in both the quantity and price of major crops. Total investment decreased by 6.5 per cent. On the other hand, government consumption grew by 7.4 per cent. The trade balance bounced back to a surplus, owing to a weaker baht. However, the favourable factors were not strong enough to offset the negative ones. The GDP forecast for the year was revised down again to between 3.8 per cent and 4.2 per cent. On the political side, the government tried to push through political reform, but failed to convince the opposition, other anti-government groups and important public figures. The reforms were simply seen as a way to allow Thaksin to return without criminal charges.

For the last quarter of the year politics became more intense. The biggest anti-government movement in Thailand’s history kicked off on 1 November after the House of Representatives speedily passed the controversial amnesty bill. After opposition party members resigned from parliament and five million people attended protests around the country, the government dissolved the lower house on 9 December. The general election date is now scheduled for 2 February 2014. However, the biggest opposition party has decided to boycott the election, similar to the boycott in April 2006 that led to the ousting of Thaksin by the military. The movement, which is now known as the People’s Democratic Reform Committee (PDRC), has vowed to use every peaceful means possible to prevent the election, and is demanding that political reform by a people’s council take place first. At the moment, it is hard to assess how this turbulence will unfold, though the military has made clear that it will not intervene.

As for 2014, political upheaval is the biggest risk for the Thai economy, as there is still no political solution in sight. Prolonged unrest could damage Thailand’s direct investment climate and sovereign rating. The currency is expected to weaken vis-à-vis the US dollar, and the Bank of Thailand is facing a dilemma about whether to increase the policy rate to restore capital outflows, or keep the rate at the current level, or lower it to accommodate domestic growth. GDP growth is expected to reach 4 per cent, but this figure could be revised down slightly if the government’s capital investment plans are not supported. The country is likely to fall behind its ASEAN peers, given that Thai participation in Trans-Pacific Partnership talks failed to progress and FTA negotiations with the European Union were disrupted by the lower house dissolution.

Thailand is advised to invest more in infrastructure to serve the logistical needs of the ASEAN Economic Community, while refraining from populist spending, which does not contribute to improved productivity over the long term. In addition, Thailand needs to immediately deal with its two underlying problems: a shortage of skilled labour, particularly in the infrastructure, construction and manufacturing sectors, and its education system, which does not currently produce sufficient, well-qualified, human resources.

Pisit Leeahtam is Dean at the Faculty of Economics, Chiang Mai University, and was formerly deputy minister of finance in Thailand.

The article is a part of an EAF special feature series on 2013 in review and the year ahead.

One response to “Land of the free still trapped in political turmoil”

  1. ” The biggest anti-government movement in Thailand’s history kicked off on 1 November after the House of Representatives speedily passed the controversial amnesty bill.”

    Is this claim that it is the biggest anti-government movement in Thailand’s history actually correct? How is this judged? By duration? Estimated number of people on the street? Surely 2010 would be ‘bigger’ than the current situation if the level of violence were considered?

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