Thai junta’s biggest task: Reviving the economy

Reading Time: 3 minutes

Thai coup economyNow that it has been announced by the Thai army leadership that democratic elections will not take place for at least another 15 months, the generals face a huge task: to revive Thailand’s crippled economy and restore investors’ confidence.

Economic activity in Thailand took a hit on the back of months of political unrest that gripped the nation. GDP slid 0.6 per cent year-on-year in the first quarter of this year and is expected to continue on its downward path due to continuing political instability.

The gridlock has particularly affected certain segments of the economy, such as tourism and construction, among others. While the more than $35 billion tourism sector, which accounts for some 10 per cent of the kingdom’s economic output, has seen significant declines, construction activity plummeted even more by some 12 per cent, according to Thailand’s National Economic and Social Development Board.

“Tourism has felt the impact by as much as 15 to 20 per cent, and this may get worse in the coming months, as tourists will be scared away by visible measures, such as the use of the martial law and the establishment of a curfew,” said Véronique Salze-Lozac’h, chief economist at the Asia Foundation.

Furthermore, both foreign and domestic investments in the nation have been affected significantly by the crisis. Indeed, investment slumped by more than 9 per cent during this period, although the country is generally viewed as an attractive destination for foreign money.

Economic data released on May 28 revealed that factory output ebbed for the 13th straight month in April, while exports remained weak and imports dipped. Against this backdrop of uncertainty and economic weakness, the military – which ousted the civilian government and took over the reins in a coup on May 22 – has focused its attention on revitalising the economy in a bid to boost its popularity.

As a first step, the military government ordered the payment of some $3 billion owed to rice farmers by the previous Pheu Thai Party-led government of Yingluck Shinawatra, which was buying the crop at above market prices. The opposition had claimed that the controversial system was corrupt and charges were brought against Yingluck by the National Anti-Corruption Commission over the scheme.

But the army’s decision to pay farmers is considered as a step in the right direction, as around 40 per cent of the Thai population is still dependent on agriculture, and the payments could boost their purchasing power. This, in effect, could spur consumption which dropped by about two per cent last quarter. The development has also prompted many Thai economists to upgrade their outlook for the economy.

There are also plans to increase government spending on infrastructure projects that could contribute to long-term growth. Thailand’s ruling military also relaxed its curfew and other restrictions aimed at reducing the economic impact on tourism.

However, the leader of Thailand’s military coup, General Prayuth Chan-ocha, has ruled out democracy and elections for more than a year. In a televised address on May 30, he said that time is required for political reforms and reconciliation, and called on all sides to cooperate and stop protesting.

While some investors and industry groups remain optimistic about the current situation and expect a quick economic turnaround, others believe business confidence and consumer spending will remain subdued in the coming months, which could raise the chances of the country slipping into a recession; explained as two consecutive quarters of negative GDP growth.

Credit ratings agencies such as Fitch hinted at a potential downgrade by saying that the political instability could threaten the nation’s economy and have a negative impact on its sovereign rating.

According to the Asian Development Bank estimates, economic expansion in Thailand will remain constrained through the first half of the year, growing at just 2.9 per cent. But in case a stable government is formed in 2015, then growth could jump to 4.5 per cent, the bank predicted.

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Reading Time: 3 minutes

Now that it has been announced by the Thai army leadership that democratic elections will not take place for at least another 15 months, the generals face a huge task: to revive Thailand’s crippled economy and restore investors’ confidence.

Reading Time: 3 minutes

Thai coup economyNow that it has been announced by the Thai army leadership that democratic elections will not take place for at least another 15 months, the generals face a huge task: to revive Thailand’s crippled economy and restore investors’ confidence.

Economic activity in Thailand took a hit on the back of months of political unrest that gripped the nation. GDP slid 0.6 per cent year-on-year in the first quarter of this year and is expected to continue on its downward path due to continuing political instability.

The gridlock has particularly affected certain segments of the economy, such as tourism and construction, among others. While the more than $35 billion tourism sector, which accounts for some 10 per cent of the kingdom’s economic output, has seen significant declines, construction activity plummeted even more by some 12 per cent, according to Thailand’s National Economic and Social Development Board.

“Tourism has felt the impact by as much as 15 to 20 per cent, and this may get worse in the coming months, as tourists will be scared away by visible measures, such as the use of the martial law and the establishment of a curfew,” said Véronique Salze-Lozac’h, chief economist at the Asia Foundation.

Furthermore, both foreign and domestic investments in the nation have been affected significantly by the crisis. Indeed, investment slumped by more than 9 per cent during this period, although the country is generally viewed as an attractive destination for foreign money.

Economic data released on May 28 revealed that factory output ebbed for the 13th straight month in April, while exports remained weak and imports dipped. Against this backdrop of uncertainty and economic weakness, the military – which ousted the civilian government and took over the reins in a coup on May 22 – has focused its attention on revitalising the economy in a bid to boost its popularity.

As a first step, the military government ordered the payment of some $3 billion owed to rice farmers by the previous Pheu Thai Party-led government of Yingluck Shinawatra, which was buying the crop at above market prices. The opposition had claimed that the controversial system was corrupt and charges were brought against Yingluck by the National Anti-Corruption Commission over the scheme.

But the army’s decision to pay farmers is considered as a step in the right direction, as around 40 per cent of the Thai population is still dependent on agriculture, and the payments could boost their purchasing power. This, in effect, could spur consumption which dropped by about two per cent last quarter. The development has also prompted many Thai economists to upgrade their outlook for the economy.

There are also plans to increase government spending on infrastructure projects that could contribute to long-term growth. Thailand’s ruling military also relaxed its curfew and other restrictions aimed at reducing the economic impact on tourism.

However, the leader of Thailand’s military coup, General Prayuth Chan-ocha, has ruled out democracy and elections for more than a year. In a televised address on May 30, he said that time is required for political reforms and reconciliation, and called on all sides to cooperate and stop protesting.

While some investors and industry groups remain optimistic about the current situation and expect a quick economic turnaround, others believe business confidence and consumer spending will remain subdued in the coming months, which could raise the chances of the country slipping into a recession; explained as two consecutive quarters of negative GDP growth.

Credit ratings agencies such as Fitch hinted at a potential downgrade by saying that the political instability could threaten the nation’s economy and have a negative impact on its sovereign rating.

According to the Asian Development Bank estimates, economic expansion in Thailand will remain constrained through the first half of the year, growing at just 2.9 per cent. But in case a stable government is formed in 2015, then growth could jump to 4.5 per cent, the bank predicted.

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