One year after coup, Thai economy mired in uncertainty

AFP

A man walks past mannequins at a shopping mall in Bangkok, on 13 Sep. One year after Thailand’s coup, the kingdom’s economic growth ranks among the lowest in Southeast Asia as domestic demand and investment have slumped due to political uncertainty, analysts said.

 

BANGKOK (AFP) — One year after Thailand’s coup, the kingdom’s economic growth ranks among the lowest in Southeast Asia as domestic demand and investment have slumped due to political uncertainty, analysts said.

The economy is expected to rise over four percent this year, far below average growth of 5.6 percent in the region led by Indonesia, Singapore and booming Vietnam, according to the Asian Development Bank.

Political turmoil has gripped Thailand since early 2006, when protests erupted demanding the resignation of prime minister Thaksin Shinawatra, who was accused of abuse of power and corruption.

But last September’s bloodless coup, which toppled Thaksin’s government, failed to end the political deadlock and instead pushed the nation into deeper uncertainty, slowing already wobbly economic activities, analysts said.

“The Thai economy was already heading for a slowdown before the coup, but things got worse after the coup,” said Kitti Nathisuwan, a senior economist at Macquarie Research Equities in Bangkok.

“Private consumption and private investment deteriorated further because people were very uncertain about the future. Political uncertainty was the biggest negative factor for the economy,” Kitti said.

The army-installed government did little to spur growth, analysts said.

“This government seemed to be so focused on neutralising the perceived threat by Thaksin and his supporters that it took its eyes off the economy,” said Bob Broadfoot, managing director of Political and Economic Risk Consultancy in Hong Kong.

Sriyan Pietersz, head of research at JP Morgan Securities Thailand, said the junta’s priority was not the economy but the passage of an army-backed constitution in the kingdom’s first-ever referendum.

“The focus has been on getting the constitution done in as short a time as possible. So there was not a broader focus on the economy,” he said.

Thai voters approved the charter in August, paving the way for post-coup elections in December.

Sukhbir Khanijoh, a senior economist at Kasikorn Securities in Bangkok, said he was hopeful that the Thai economy would pick up after the December polls.

“Unlike this government, a new, elected government will at least have a mandate, and people are hoping that the new government will push forward major economic projects to boost growth,” Sukhbir said.

The junta’s economic policies took a disastrous start with implementation of controversial capital controls, which caused the biggest-ever one day drop in the Thai stock market in December 2006.

The capital measures, which were aimed at halting the Thai baht’s rise, were seen as a steep tax on equity investments, prompting investors to dump shares.

Facing stock losses worth a staggering 23 billion dollars, the central bank was forced to ease the controls for equities and property in an embarrassing policy U-turn.

“The government learned its lesson from the capital controls. Since then, its economic policies have been rather benign,” Kitti from Macquarie said.

Even when the baht hit 10-year highs against the dollar in July, pressuring growth of exports, the key driver of the economy, investors were hardly impressed by government measures aimed at weakening the local unit, he said.

Under the schemes, ordinary Thais can open US dollar-denominated bank accounts with deposits worth up to 100,000 dollars and Thai firms are allowed to keep foreign currency revenues for a longer period.

But what really pressured the baht to more than 34 to the dollar from a 10-year-high of 33.2 in early July was foreign capital flight sparked by the US housing loan crisis, not the government’s measures, analysts said.

As business confidence and consumer spending sagged amid political turmoil, exports were among the few bright spots of the Thai economy and were expected to rise by 13 percent year-on-year to 144.9 billion dollars in 2007.

AFP: One year after coup, Thai economy mired in uncertainty

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