Thailand’s economy: Return to growth?

By Jon Connars

Thailand’s economy is finally showing signs of making a sustained recovery after two years of subpar growth prompted by the political unrest ushered in by the 2014 coup. The IMF forecast predicted growth of 3% this year and 3.5% in 2017, despite significant economic headwinds caused by a slowdown in Thailand´s largest trading partner, China, as well as by the appreciation of the Thai baht. Growth would have come from the successful implementation of an ambitious public spending plan focused on boosting infrastructure. But then, on March 23rd, the junta’s well-laid economic plans were dashed after General Prayuth Chan-o-cha announced it would cancel one of its central pillars, a high-speed rail link with China.

Despite two years of furious negotiations and a cathartic breaking ground ceremony in December, the Thai government and the China Railway Construction Corporation failed to come to an agreement of the terms on the $15.7 billion project. Prayuth announced instead the building of a watered-down version of the high-speed rail, linking Bangkok and the quaint Thai city of Nakorn Ratchasima. This cancelling of the Chinese rail link and its replacement with one of questionable economic rationale has raised heckles from experts for whom the debacle is indicative of a regime that is lacking in the political nous required to undertake such negotiations. Either way, it comes as a rude awakening to the Thai Junta who had hoped to secure in China an unconditional economic partner that could have offset the cold shoulder delivered by the West over its repeated delays in giving power back to a civilian government.

Bangkok

Bangkok

If Thailand does find itself abandoned by China and in need of Western support, its current leaders have a lot of making up to do. While the IMF and the Asian Development Bank sought to massage investors’ fears with their latest forecasts, from a political risk perspective Thailand’s economic potential will continue to be stifled by political uncertainties. For all the Junta’s rhetoric that the coup was an act of mercy to save Thailand from the political violence and corruption that characterized the rule of previous governments, their actions since have done little to inspire confidence. Draconian laws against insulting the monarch and widely reported human rights abuses suggest that their aim is to fashion the state in the military’s image before handing it back, if ever, to civilian rule.

A case in point recently has been the passage of a law granting sweeping policing powers to the military, which is widely seen as an effort to undermine the civilian police force. Under the law, the military will have powers of arrest for crimes against public peace, defamation, gambling, and extortion amongst others. They will also be allowed to seize assets, search properties without a warrant and place travel bans on suspects. This law is sure to be met with anger by foreign investors, as it raises the specter of forced nationalizations or asset seizures.

This creeping militarization of the state, even as the Junta professes its intention to withdraw from power, can also be found in the final draft of the much-vaunted constitution, which is supposed to serve as a prelude to civilian rule. In the minds of foreign investors, hashing out a new constitution was a major political variable with a long-term economic impact, a document that could make or break the Thai state. Properly adjusted, it could have reaffirmed Bangkok’s role as one of ASEAN’s main commercial hubs. Sadly, the latest iteration is on track to give the military even more power than before and takes major steps towards reversing the democratic gains of the 1997 charter.

Due to be put before a referendum in August, the constitution provides for a senate with 250 members, fully appointed by the military and endowed with sweeping powers over the legislature and judiciary. The unelected senate can appoint a constitutional court, which has then the power to grant legal immunity to the junta. The Charter also calls for a transitional period (of 3 to 5 years after the 2017 elections) during which the military would hold veto power over the government. Furthermore, the constitution allows for unelected officials to become prime minister, potentially leaving an open door for General Prayuth to resume power in a constitutional capacity.

The Pheu Thai party of ousted Prime Ministers Thaksin and Yingluck Shinawatra have called on their supporters to vote against the constitution. However, how effective such a boycott can be is another major concern. The government has made criticizing the constitution illegal. And with political gatherings of more than 5 people banned, the avenues to actually mount a campaign against the constitution are all but closed off.

Taking a dim view of all this, and further dampening Thailand’s potential growth, the EU has put the kibosh on a Free Trade Agreement that had been penned under the previous government, and is also threatening Thai fish imports with a blanket ban, citing human rights abuses in Thailand’s fishing industry, including the use of trafficked labor and child slaves. This would come as major blow to the Thai economy as it is one of its staple industries and the EU accounts for 15% of its exports. The Junta’s behavior has also soured its chances of joining the TPP, the Asia-Pacific free trade agreement touted as a major economic boon for signatory members. And if all of this wasn´t enough, Thailand is experiencing its worst drought in 20 years.

All things considered, Thailand’s optimistic growth projections may very well turn out to be a mirage.

Jon Connars is an investment risk analyst and researcher with an expertise in the ASEAN region who currently shuttles between Singapore and Bangkok.

The opinions expressed in this column are the author’s own and do not necessarily reflect the view of Asia Times.

Copyright 2016 Jon Connars



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