By Guest Contributor
Although most agree that Thailand’s economic outlook has improved since the military junta took power in May, Southeast Asia’s second largest economy can expect a tough couple of years ahead before it recovers to the growth rates enjoyed by the ousted Yingluck Shinawatra government.
A recent World Bank report predicts “that consumer and investor confidence, which have declined since internal conflicts broke out last November, will slowly recover with the stabilization of the political situation after the coup d’état in the latter half of May.”
While economists in Thailand say that a return to 6 or 7 percent growth is just around the corner, the World Bank report predicts a slower recovery, with the economy growing just slightly this year and 3.5 percent in 2015.
While growth forecasts for Thailand lag far behind those of its Southeast Asian nations, the upturn in the second half of this year is a marked improvement on H1, when the economy contracted amid 6 months of political agitation and the absence of a functioning government after Yingluck Shinawatra dissolved parliament in December 2013.
During the first six months of 2014 exports dropped, tourist numbers dwindled, while investment and domestic spending plummeted. The latter is one of Thailand’s greatest challenges. “Household consumption will not recover quickly, because household debt has soared, reaching over 80 percent of GDP in 2014,” says the World Bank report, predicting household spending will grow just 1.5 percent in 2015. Purchases of apartments cars and consumer durables remain low, while the price of land is dropping in some parts of the country.
While consumer confidence is low, other areas such as exports and tourism are showing signs of recovery. The fall in imports is expected to reverse next year. The end of street protests after the junta took power in May has gone a long way in restoring investors’ and, perhaps, tourists’ confidence in Thailand. Wisely, the junta was also quick to begin paying farmers money owed under the disastrous rice pledging scheme introduced by the Yingluck government. Not only did it win the support of many farmers for the junta, the 90 billion baht (US$2.74 billion) pay-out provided a welcome boost in domestic spending.
The junta also moved quickly after the coup to approve billions of dollars worth of investment projects in a bid to kickstart the ailing economy. Coup-maker Gen. Prayuth Chan-ocha met with Thailand’s Board of Investment (BOI) within three weeks of the military’s takeover, personally overseeing the appointment of a new board and the approval of projects.
“Since the NCPO appointed the BOI board on 8 June 2014, the board has approved investment incentives for 603 projects worth 458,595 million baht [US$14 billion],” said the BOI in a statement last month. It is important to note that many of these projects were applied for under the Yingluck government, but were waiting for approval after the dissolution of parliament in December and were not really the work of the junta.
Meanwhile, the junta announced its draft 2015 budget in August with a total allocation of 2.58 trillion baht (US$81.08bn) – 50bn Baht ($1.57bn) or roughly 2 per cent more than the previous budget. Notably, the draft allowed for a significant increase in spending both in education and defence.
Also in August the junta announced a massive US$75 billion infrastructure investment plan aimed at improving Thailand’s road and rail networks, including high-speed rail that would link Thailand to China, Laos, Malaysia, and Singapore. A similar plan proposed by the Yingluck Shinawatra government was earlier shot down by Thailand’s Constitutional Court.
On the face of it, Thailand’s economy has improved since the junta took power in May. The country is returning to growth, albeit very slowly. However, if we take the longer view and add the months of political agitation that led to the putsch to the equation, then the cost of the coup to the Thai economy becomes a whole lot higher. Coups are not a cheap means of changing government. By the time Thailand’s economy fully recovers in two or three years’ time, the country will likely have lost tens of billions of dollars.
A lot will depend on the junta’s actions in the coming year. Serious doubts remain as to whether the its hand-picked parliament and committees can effectively run the country, especially as it faces some very tricky issues over the next year or so. These include:
The price of rice
The failure of the Yingluck Shinawatra government’s disastrous rice subsidy scheme helped fuel the anti-government protests earlier this year, and the junta’s payout to the rice farmers won it many friends. However, that honeymoon period is not likely to last long. Some kind of subsidy scheme will be needed to keep rice farmers on board, and it remains to be seen how the junta government will deal with that, or whether it will pass the problem on to the next elected government.
Energy price reform
Fuel price “subsidies” cost Thailand an estimated US$15.6 billion over the past three years, said PTT chairman Piyasvasti Amranand in July, calling on the junta to move decisively to cut fuel subsidies. He argued that the junta is in the perfect position to make “politically sensitive” reforms. Such a move could save the government billions, but would also raise the price at the pump for the average motorist. The junta, for its part, has shied away from moves that could dent its popularity, even reducing the price of LPG for household use, undoing a price increase approved by the previous government. Real energy price reform looks unlikely under the current regime.
The strong baht
The strength of the Thai baht improved again after the coup after weakening during the political agitation and street protests earlier this year. A strong baht is not ideal for an economy that relies heavily on exports, tourism and foreign investment. Previous governments have toyed with the idea of devaluing the baht to reap the inevitable gains, but it has been strongly opposed by the Central Bank and finance ministries. Devaluing the baht could be an option for a junta looking to kickstart the economy, though it hasn’t hinted at doing so yet.
Political unrest, street violence, a coup and the high-profile murders of two British tourists on Koh Tao have severely dented Thailand’s reputation as a tourism destination this year. Given that the tourist industry accounts for nearly 10 percent of GDP, this is a serious problem for Thailand. Tourism Minister Kobkarn Wattanavrangkul said he expects 25 million visitors this year, though we think that’s very optimistic given that the junta’s attempts at saving the country’s image have been ham-fisted, at best. We’ll have more on Thailand’s struggling tourism industry later in the week.
Thailand’s economy has stabilised since the junta took power in May and looks to be at the beginning of a slow recovery. The country has bounced back from coups and political violence in the past, and will no doubt do so again. How effective the military rulers will be in bringing this about remains to be seen. The junta has a long way to go if it is to recover the losses incurred by the nation due to the events that swept it to power in the first place.
The 28 Weeks Later series – Thailand 6 months after the coup:
Introduction: 28 weeks later in post-coup Thailand
Part 1: Economic stability comes at a cost under Thailand’s military junta
Part 2: Prayuth, censorship and the media in post-coup Thailand
Part 3: An education fit for a zombie?
Part 4: Are Thai people really happy after the coup?
Part 5: Thailand’s junta and the war on corruption
Part 6: PDRC myths and Thailand’s privileged ‘new generation’
Part 7: Thailand tourism down, but not out
Part 8: Education reform in Thailand under the junta
Part 9: 28 weeks later in post-coup Thailand: Some personal thoughts