Thailand’s economy desperately seeking stability

Reuters

Wed Dec 19, 2007 1:25am

By Orathai Sriring

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BANGKOK (Reuters) – After two years of political upheaval and post-coup policy bungles, most Thais and foreign investors hope Sunday’s general election will signal the end of a period of disappointing economic growth.

But with polls and most analysts pointing towards, at best, a weak coalition government led by the Democrat Party or, at worst, another military coup, the chances of a firm hand on the economic tiller are slim.

“This year has been very tough because the economy is so bad,” said 32-year-old taxi driver Preecha Potana, bemoaning the slowest annual growth in six years.

“I’m not sure if things will improve, but I’m just hoping for the best after the election. Many things have happened over the past year, but it has done little to help us”.

Immediately after the September 2006 coup against Prime Minister Thaksin Shinawatra, some investors hoped months of political stalemate and street protests against the telecoms billionaire might finally be over.

But a year later, the coup is being seen as a failure, with Thailand’s 65 million people as divided as ever and the interim government distracted from governing by its struggle to pin corruption and abuse of power charges on Thaksin.

Rudderless, the export-driven economy has not fared well against the pressure of a rising baht, record oil prices and weak foreign investment as a result of policy errors such as last December’s clumsily imposed capital controls.

Despite the controls, repeated currency intervention and five interest rate cuts, the baht has risen 7.4 percent so far this year against a weak dollar. 

Foreign investors want the “draconian” capital controls to be scrapped, along with proposals that would make foreign ownership of Thai businesses more restrictive.

The Democrats, most favored to lead a coalition even though they are forecast to come a distant second to the pro-Thaksin People Power Party (PPP), have promised to comply.

They, and most other parties, also pledge broadly market-friendly policies and renewed attention to massive public infrastructure projects that have languished since the coup.

The hope is that the increased spending and the presence of an elected government will help boost consumer confidence, which has languished at five-year lows for most of 2007, keeping growth to little more than 4 percent against 5.1 percent in 2006.

“Thailand should be one of the most attractive places for investment after the election,” Catherine Tan, an analyst at Thomson Financial in Singapore said.

Some signs of better times are indeed there.

Domestic consumption rose 2.6 percent in October from a year earlier, compared to a 0.3 percent rise in September, and business sentiment and private investment indices are on the rise after months of gradual decline in the first half.

The Board of Investment has booked $18 billion in foreign and domestic investment requests in the first 11 months of the year, a 32 percent increase on the same period in 2006, and the stock market has climbed 20 percent, fuelled mainly by $1.7 billion of foreign buying. 

“Whether these trends will continue partly depends on the December 23 election and the policies the new government will eventually pursue,” the Royal Bank of Scotland said.

“Factoring in a smooth political transition, we forecast GDP growth to accelerate mildly to 5.1 percent in 2008 from 4.2 percent this year,” it said in a research report.

On the streets, however, the mood is not so upbeat.

“I don’t expect much from the election. Everything is more expensive and I can’t raise my prices or customers will go away,” said noodle vendor Yupin Tasri, a 35-year-old mother of two.

“Whoever is in government will not make much difference. They can’t bring down the price of goods. They promise this and that, but they hardly deliver.”

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