BANGKOK - Thailand's economy is fast
decelerating, representing a volatile new
complication to the country's already uncertain
political situation and a significant risk to its
overall global competitiveness.
A series
of policy missteps have badly undermined
foreign-investor confidence in the
military-appointed government's economic
stewardship, including the imposition of capital
controls on foreign currency, equity and bond
transactions, proposed
nationalistic amendments to
the Foreign Business Act, and the nationalization
of foreign-held media assets.
Now recent
economic statistics show that local investors and
businesses are equally concerned about the
country's economic direction under military rule.
Headline economic growth fell year on year from
6.1% in the first quarter of 2006 to 4.3% in the
same quarter this year. Most telling, private
investment contracted in the first quarter of this
year for the first time since 2001, falling 2.4%
year on year.
Private consumption fell to
its lowest level since the second quarter of 1999,
contracting for both durable goods and services,
according to recent Phatra Securities research.
Meanwhile, James Pitchon, executive director of
the international real-estate firm CB Richard
Ellis in Bangkok, says year-on-year take-up of
office space in the capital city was down 60% last
year.
The economic slippage represents the
latest mark on the military's tumultuous
nine-month record. Upon seizing power in a coup
last year from prime minister Thaksin Shinawatra,
the now-ruling Council for National Security (CNS)
quickly moved to distance itself from the former
premier's high-octane economic policies, which
included aggressive state-bank lending and
ambitious infrastructure development.
Rather than ramping up growth, the CNS
declared its intention to put the economy on what
it referred to as a more sustainable growth
trajectory. Toward that end, the
military-appointed government put on ice several
of the US$43 billion worth of megaprojects Thaksin
had designed to pump up the local economy in
anticipation of slowing global demand for Thai
exports and a cyclical downturn in the housing
market.
Despite last year's 17%
appreciation of the Thai currency, the baht,
against the US dollar, Thai exports had performed
strongly, expanding more than 17% year on year in
2006. That strong trend has continued into 2007,
accounting for a $5.5 billion current-account
surplus in the first quarter.
To date,
those surpluses have provided Thailand's ruling
generals with a financial cushion from souring
foreign-investor sentiment. However, exports are
expected to soften significantly in the coming
months, witnessed in the meager $400 million
current-account surplus recorded in April, meaning
the economy must soon find growth from other
sources to avoid a slide into recession. (Exports
contribute more than 65% of Thailand's total gross
domestic product.)
There is a significant
political risk to a further decline in the local
economy. Bangkok's business elite largely
supported the military's move to oust Thaksin,
whose government was perceived by many foreign and
local investors as corrupt. However, few foresaw
the military-appointed government's nationalistic
approach to economic policy, which has alienated
big foreign investors.
So far,
public-opinion polls show that Bangkok residents
still support the interim government, but that
could change quickly if the economy slips deeper
into the doldrums. In an apparent policy shift,
Prime Minister Surayud Chulanont's government is
rushing to fill the economic gap through more
state spending, which increased about 11% year on
year in the first quarter.
That
pump-priming has so far failed to stimulate
investment growth, as most of the disbursements
went toward bureaucracy salaries and
state-enterprise expenditures. According to Phatra
Securities research, central and local government
spending actually fell by 0.3% year on year in the
first quarter, after expanding 12.7% in the fourth
quarter of 2006.
Bottlenecks and
gridlock According to some economic
analysts, Thailand's grinding political conflict
and its now-apparent attendant economic slowdown
are starting to impact on the country's overall
competitiveness. Central to those concerns are
lagging infrastructure-development plans and
mounting foreign-investor reluctance to contribute
funds to military-approved projects.
A
2006 World Bank report identified deficient
infrastructure as one of the top three
competitiveness concerns for Thai firms. Thai
business leaders consistently acknowledge the need
to improve infrastructure to keep costs low and
remain globally competitive. In recent years,
basic transportation logistics are as much as
twice as high in Thailand than in many developed
countries, weighing against the country's overall
competitiveness.
The previous government
reached out to foreign investors to help manage
and finance its various infrastructure-development
plans. However, at a March meeting attended by
several Thailand-based foreign business leaders,
once-upbeat investor sentiment on Thai
infrastructure projects had soured since last
year's coup and change in government.
Many
investors at the meeting cited the uncertainty
surrounding the foreign-investment regulatory
regime, including what they perceive to be recent
nationalistic revisions to the Foreign Business
Act, for dampening their sentiments.
To be
sure, a handful of big-ticket infrastructure
projects are already under way. In Bangkok,
construction on five mass-transit rail lines, one
so-called bus-rapid-transit line, and the final
section of the city's outer ring road, which
includes two soaring suspension bridges, are
currently on track. An additional 137 kilometers
of mass-transit trains are now in the final
planning stages and, if completed on time, would
push mass transit beyond central Bangkok into the
suburbs by 2013.
In the provinces, road
construction is proceeding on the Association of
Southeast Asian Nations highway links, including
east-west and north-south corridors designed to
interconnect the Indochina region with China and
pave the way for more efficient regional trade.
Last December, a vital piece of the east-west link
opened with the completion of the second Thai-Laos
Friendship Bridge.
And the freshly paved
Highway 331 will more efficiently connect
industrial parks to the country's largest deepsea
port at Laem Chabang along the eastern seaboard.
The port also has plans to increase its capacity
from 6.6 million twenty-foot equivalent units to
13.3 million TEU by 2011.
Yet so far those
projects have not been enough to revive broad
investor, business and consumer sentiment,
including crucially in the manufacturing and
real-estate sectors. Economists note that road
construction was a primary investment driver in
the 1980s and into the early1990s, when Thailand
was still one of the world's fastest-growing
economies.
Now, economic analysts contend
that the country needs new or upgraded highways
and flyovers all over the country to maintain fast
economic growth. And while infrastructure
bottlenecks will not single-handedly downgrade
Thailand in the eyes of Asia-destined foreign
investors, the military-appointed government's
nationalistic policy signals have.
Central
bank governor Tarisa Watanagase was quoted saying
vaguely at a recent presentation on the country's
investment climate since the coup that the recent
"confluence of events" was a "cause for concern".
She was speaking to the still-unresolved political
crisis pitting the military versus Thaksin's
disfranchised supporters.
Now a
fast-slowing economy threatens to accentuate and
complicate those political divisions.
Edward Russell is a
Bangkok-based freelance journalist.
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