Thai economy turns sour: Are the good times over?By Asia Sentinel Aug 22, 2013 11:18AM UTC
GDP contracts, stock and currency markets tumble in the Land of Smiles, reports Asia Sentinel
Thailand this week delivered truly shocking GDP and current account numbers for its second quarter. Stock and currency markets tumbled as the economy contracted 0.3 percent in the second quarter over the first which also saw a contraction – though GDP is still 2 percent above the level a year ago. Worse was a current account deficit of US$5.1 billion, a dramatic turnaround for a nation which has enjoyed surpluses every year since the Asian crisis of 1998-1999.
Were these numbers just statistical freaks, so that the second half of the year will see Thailand back in the black, ending 2013 with GDP growth at 4 percent – the Asian Development Bank’s lowered forecast – and the current account in balance? Or has a corner really been turned in Thai fortunes which will put growth, the current account and the government’s budget under pressure for a sustained period?
Recent falls in global emerging market stocks and currencies have been largely attributed to fears of tighter money as US “quantitative easing” is “tapered”. But data from Thailand (and Indonesia and India) suggest that there are deeper problems than simply the end of easy money. A more fundamental problem is declining current account balances at a time when debt costs are rising.
The answer to whether Thailand has just suffered a temporary blip will not be known for several months at least which is bad news for Prime Minister Yingluck Shinawatra. Her government faces declining popularity but wants to push through an amnesty for political activists of all colors but which is widely seen as a wedge to enable the return of her brother, Thaksin. The decline in Yingluck’s fortunes is more closely linked to economic and other issues rather than the amnesty bill. So poor economic numbers make it all the more difficult to push ahead with programs intended to bolster the government’s popularity.
The first directly relates to both export weakness and budget constraints: the “rice pledging” policy by which the government undertakes to buy rice at a price far above the world price. That has left Thailand with huge unsold stocks but has done nothing to push up the world price as India, Vietnam and others have all happily filled the space once occupied by Thai exports. Yingluck has tried to reduce the pledging price but met with stern resistance from the very farmers its policy is trying to appease. Warathep Rattanakorn, the deputy agriculture minister, said earlier this week that it might be three years before the program is likely to be scrapped. Meanwhile scandals over the implementation of the scheme have been negative for the government’s image.
To improve growth prospects, Yingluck has been pushing two major investment projects – one a massive water control system designed to prevent future flooding of Bangkok and environs, the other a huge railway building project focused primarily on high speed rail links. The water project has already run into opposition from assorted affected interests and environmentalists. As for railways, Thailand badly needs massive improvements to a creaking, ill-managed, single track, meter gauge system dating to the 19th century. But given the distribution of the Thai population and the relatively small size of urban centers other than Bangkok and its surrounds, a high speed system looks a gigantic waste of money compared with double tracking the existing one.
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