thegreglowe.com

By GREG LOWE
in Bangkok

THAILAND’S longest-ever demonstration ended last Wednesday when the anti-government People’s Alliance for Democracy (PAD) called a halt to its street protests, and ended its eight-day siege of Bangkok’s two international airports. But its economic impact could drag the country’s economy into recession next year, according to analysts, who said that entrenched political turmoil would continue to erode the economy.

Last Tuesday, Thailand’s Constitutional Court ordered the ruling People Power Party (PPP) and two coalition partners to be dissolved for electoral fraud committed in last December’s general election. This led PAD to end its 192-day protest, which included a three-month occupation of Government House and airport blockades, which stranded 350,000 tourists. Violent clashes between PAD, the police and pro-government supporters killed eight and injured more than 700.

The opposition Democrat Party, former-PPP coalition members and politicians from the now-defunct PPP, Chart Thai and Matchima Thipataya parties, on Saturday announced plans to form a new coalition government.

Federation of Thai Industries (FTI) welcomed the move, saying that the new Democrat-led coalition could restore peace and investor confidence. Analysts were sceptical over what unity, if any, the proposed coalition could return to Thailand’s political system, or how it could shore up the flagging economy.

‘These guys (in the proposed coalition) have been battling each other for the past four or five years,’ Paul Quaglia, political and security analyst at PSA Asia said yesterday. ‘Just because they join arms for a photo opportunity doesn’t mean we’ll have any government stability. Even if they can cobble something together, they are completely out of touch with the financial problems facing Thailand now,’ he said.

‘They have no plans, no policy, and getting one would depend on the kind of unity that they aren’t even near at this point.’

Last week, political instability saw ratings agencies downgrade their outlooks on Thailand’s economy, and some of its banks and key businesses, to negative.

‘The inability of the country’s judicial and executive branches to prevent civil disobedience from causing major dislocations suggest that Thailand’s institutional strengths have become compromised,’ said Tom Byrne, senior vice-president, Moody’s Investor Services.

Bank of Thailand, which slashed interest rates by 100 basis points to 2.75 per cent last week, the largest single cut since the Asian financial crisis, said that the turmoil was causing fiscal stimulus delays.

The full effects of the airport blockades have also yet to be realised, according to analysts. Thailand’s gross domestic product (GDP) is 25 billion baht (S$1.1 billion) per day, according to Phatra Securities, with tourism injecting 600 billion baht in to the economy each year, or 6 per cent of GDP. It estimated daily losses from the airport seizures of 5-7 billion baht, with the effects potentially dragging Thailand into recession next year.

‘Political turmoil will likely cause bookings to be halved during 4Q08 and 1Q09,’ said the company. ‘In the worst case, tourism revenue will be halved in 2009, representing a loss of 3 per cent of GDP. Exports that utilise airfreight will also be affected and the need to pay higher airfreight cost could subtract another one per cent of GDP.

‘Therefore, GDP, which was expected to grow 3-4 per cent in 2009, could be flat or slightly negative.’

Tourism consultants predict a 10-50 per cent drop in arrivals next year. The industry currently employs 2.4 million people, leading some analysts to forecast up to one million job losses as a direct result of the PAD blockade.

Last week, Thai Airways said that it would sue the PAD for 20 billion baht losses incurred from flight cancellations due to airport closures. The Board of Trade said that the closure cost three billion baht per day in imports and exports. Thailand Convention and Exhibition Bureau revised down the local meetings industry’s 2009 revenue target by a third to 52 billion baht, from 77 billion baht. FTI said that the country’s logistics industry faces losses of up to 22 billion baht from the airport closures.

‘A month ago, I was saying Thailand’s underlying fundamentals were strong enough to ride out the problems. Now, I’m not so sure,’ said Ramesh Hamal, chief operating officer of Green Heritage Group, a property development consultancy.

The situation continues to fuel volatility on the Stock Exchange of Thailand. ‘Current concerns are based around uncertainties of who is going to be the new prime minister, and who will form the government,’ said Rakpong Chaisuparakul, strategist, KGI Securities (Thailand). ‘Investors are concerned that PAD will restart its protests if the new government or coalition is drawn from the PPP. Everyone is waiting to see what will happen this week.’

Thailand’s revered monarch was unable to give his annual birthday address last Thursday, due to sickness. The king often discusses national unity, culture, sufficiency economics and politics in his speech.

Yongyuth Wichaidit was elected as the leader of Puea Thai party, PPP’s new incarnation, yesterday.

Whichever coalition forms the new government, whether led by the Democrats or the Puea Thai (PPP’s replacement), political instability is almost guaranteed. PAD said that it would renew protests if it does not approve of the new prime minister or government. The pro-PPP United Front for Democracy Against Dictatorship (UDD) said that it would rally its members against the court’s decision, and yesterday dubbed the new Democrat-led coalition a ‘coup in disguise’.

PAD opposed PPP, saying that it was a proxy for former prime minister Thaksin Shinawatra, who was deposed in a 2006 military coup and currently lives in exile, having been found guilty for corruption last October. Prime Minister Somchai Wongsawat, who was banned from politics for five years by last Tuesday’s court ruling along with 108 other politicians from the dissolved parties, is Dr Thaksin’s brother-in-law.

Published December 8, 2008
© The Business Times