ASIA NEWS NETWORK
WE KNOW ASIA BETTER
Thai economy falls victim to political turmoil
Publication Date : 18-02-2014
Thailand's political unrest pummelled economic growth in the three months until December last year, while the impasse is holding up investment approvals and budget preparation.
Gross domestic product in the final quarter grew just 0.6 per cent, the slowest pace since early 2012, according to figures released yesterday by the National Economic and Social Development Board (NESDB), the state planning agency, as protesters took to the streets of Bangkok to oust caretaker Prime Minister Yingluck Shinawatra. The weak data pulled down full-year growth to 2.9 per cent, a far cry from the 6.5 per cent in 2012.
For this year, the NESDB has sliced 1 percentage point off projected growth - to between 3 per cent and 4 per cent - as political limbo looks set to constrain government spending and investment indefinitely.
Tourism, the country's major revenue earner, took a big hit as arrivals in January - a peak period - grew just 0.06 per cent over the same period last year, casting doubt over projections of major growth this year.
Asean's second largest economy is no stranger to political upheavals, having experienced sporadic demonstrations and occupations of public installations since 2006, when then Prime Minister Thaksin Shinawatra was ousted in a military coup.
But observers note that the current putsch against his sister Yingluck is looking more protracted than before, with a slim likelihood of any semblance of authority being put in place soon to rev up an economy previously thought to be immune to political trouble.
In fiscal terms, the government's hands have been tied since December 9, when Yingluck dissolved Parliament to call fresh elections that took place on Feb 2.
While the government can keep basic services running, it cannot start any projects that would impose a financial commitment on the next government. This includes granting tax incentives to investors.
It also cannot conduct any activity that is deemed to give the incumbent government undue electoral advantage.
The Board of Investment, which grants tax privileges, cannot convene because the caretaker government has no power to appoint new members.
NESDB deputy secretary-general Thanin Pa-em told The Straits Times that budget planning for the fiscal year starting in October has been held up.
"We can't do it for the time being because the budget would have an effect on the next government," he said.
The political limbo looks set to continue as protesters disrupted voting in 69 out of 375 constituencies in the Feb 2 election, preventing the incumbent Puea Thai Party from getting a fresh mandate.
While a re-run of polls is set for April 27, it will not solve the problem either as protester-induced vacancies in 28 constituencies will prevent the Lower House from opening a session.
Large building projects which normally catalyse private investments have stalled. These include major components of a seven- year infrastructure development programme as well as a 350 billion baht (S$10.8 billion) flood and water management plan.
The former programme involves a 2 trillion baht loan plan, which is now under the scrutiny of the Constitutional Court. This court has thrown out two Thaksin-affiliated premiers in the past.
"Even if the Constitutional Court says yes, those programmes still need to be approved by the Election Commission," said CIMB analyst Kasem Prunratanamala.
On the bright side, expansion work on Bangkok's overcrowded Suvarnabhumi Airport will continue as the budget for it was approved before snap polls were called. And, much as investment is being held up, this go-slow mode will ease the country's labour shortage, said Kasem.
But these blessings may count for little if the impasse drags on, and as the region braces itself for the pullback of economic stimulus from the United States.
Thanin said: "The critical thing is that we don't know when the government can come into office."