Sunday, June 20 2021 | ASIA TODAY INTERNATIONAL - Reporting the Business that Matters in Asia
Why Thailand needs a reality check
IT is way past time that Thai governments – elected or not – effectively addressed core problems that have been ignored for so long . . .
BANGKOK — In May 2014, when the Thai military completed its second successful coup d’état in eight years, foreign investors sold off shares and ran for cover even as domestic investors, relieved at an apparent end to political violence and stagnation that had torpedoed the economy, showed renewed optimism.
One year later, with the military still in charge, the tables have turned. Foreig investors are upbeat on Thailand and the prospect of capitalising on a promised
Government infrastructure-spending spree — while domestic consumer confidence has hit a 10-year low, and business confidence is also on the wane.
Has Thailand’s military wrecked its economy? Democracy activists and the regime’s political opponents are quick to say so, contending that the Army simply does not know how to run an economy.
But the Generals have taken pains to consult local and foreign business people about policy direction, and placed economic management largely in the hands of technocrats.
A fairer analysis points to a range of problems finally taking their toll after successive Governments, mostly democratically-elected, ignored or failed to address them.
Coupled with external factors, the current Government is caught between a rock and a hard place.
Thailand’s central bank is expecting only three per cent economic growth this year. Within the region, that is considered anaemic when compared to rates in the Philippines, Indonesia and some other competitor economics. More troubling, however, is the fall in exports, which are the main driver of the Thai economy. Exports contracted by four per cent on-year during the first quarter, and the World Bank is forecasting just half a percentage point in growth for all of 2015.
The slump in exports, however, predates the military’s intervention. From 2006 through 2011, exports expanded an average of 13 per cent a year. From 2012 through 2014, however, export growth was less than one per cent a year.
Thailand’s exports are diverse, but many are either agricultural commodities or medium-technology manufactured goods. Commodities prices have been slumping in recent years, and the medium technology goods Thailand produces are either entering a sunset phase or Thailand’s price points have become uncompetitive.
China, which gobbled up a large chunk of Thai exports, is cooling off economically — and its demand for Thai goods, both raw and manufactured, has fallen. Tepid recoveries in Europe and Japan have also hurt.
And the baht is trading at roughly 32 to 33 to the dollar while the Government has raised minimum wages, making everything Thailand produces less competitive.
Thailand’s exports figures could rise, an economist at the World Bank said recently, if the baht devalues further during the year. There is no indication from the central bank, however, that that will happen.
The strong baht has bolstered the bottom lines and valuations of Thai companies and helped them expand their businesses at home and overseas. Retail giant Central Group, for example, has begun making inroads in Europe. But a slide in the value of the baht would multiply debt burdens. The central bank, therefore, is in a tricky position in deciding what to do.
The three ratings agencies have kept Thailand’s ratings stable at investment grade and praised the country’s overall macro-economic management. Moody’s and others have warned, however, that household debt is too high. And with confidence low, a burst of consumption to drive growth is, therefore, unlikely.
That leaves investment as the only hope for higher growth. On that score, Thailand does have some prospects. The Government is in the process of signing agreements with China and Japan to build high-speed and dual-track rail lines worth more than US$70 billion. These should accelerate growth, but work has yet to begin.
The rail lines will forge stronger trade between Thailand and its neighbours —from China in the north to Singapore in the south, along with Laos, Myanmar, Cambodia and Malaysia. With the advent of the ASEAN Economic Community (AEC), Thailand’s best hopes for short-to medium-term stronger growth could lay within the region.
Thailand’s track record of openness to investment, its strategic location, and the infrastructure it already has should make it a force to be reckoned with in the AEC. The country has bounced back from adversity several times in recent decades.
Beyond upgrading or building new infrastructure, however, Thailand needs to address some core problems to ensure its longer-term competitiveness. While the Thai economy was largely impervious to political turmoil during its strong growth decades, economists now warn that political instability is hurting the economy.
It is highly questionable whether the regime’s reform of the political system – with elections likely next year – will last. A return to a period of division and instability is possible in coming years. The Government has decided not to pursue cleaning up and reforming the police and justice systems while also improving education, reasoning that it can’t accomplish these goals during its limited time in power. And without stronger education, Thailand is handicapping itself as it aspires to become more of a creative, knowledge-based economy producing higher value-added goods so that it no longer depends on cheap labour that isn’t so cheap anymore.
Corrupt police and a justice system that has issued some doubtful rulings undermine rule of law and have contributed to a raft of problems including from human trafficking and intellectual property piracy.
Infrastructure development and a rebound in some of Thailand’s key export markets can buy the country some breathing space. Solid growth may yet return.
But it is way past time that Thailand’s Governments — elected or not — effectively addressed the core problems that have been ignored for so long.
* Robert Horn is Bangkok correspondent for ATI Magazine.