It’s hard to tell which is the real Thailand: Is it the country whose politics are so divisive and violent that an army coup is possible? Or the country that hosts one of the biggest smoothly functioning carmaking hubs in the world? Thailand is both things—and that’s why the foreign and local business community greeted the latest chapter in its long political drama with a shrug. Upset about Prime Minister Yingluck Shinawatra’s proposed amnesty bill to allow her billionaire brother, former Premier Thaksin Shinawatra, to return from exile in Dubai and avoid prison for a corruption conviction, the anti-Thaksin Yellow Shirts took to the streets in August. Investors have grown accustomed to the contest between the Yellow Shirts and pro-Thaksin Red Shirts, so even as Yingluck’s opponents vowed to bring down her government, the markets stayed calm.
Now Thailand’s crisis is deepening. Ten Thais have died, including an opposition leader, and the government declared a state of emergency in Bangkok on Jan. 21. With the opposition Democrats (the Yellow Shirts) boycotting elections scheduled for Feb. 2, it’s uncertain whether voting will proceed without major disruptions. The military hasn’t taken sides but hasn’t ruled out another coup—there have been nine since 1946. This round of turmoil “is proving more durable than many of us thought,” says Tim Condon, head of Asia research in Singapore for ING Investment Management.
The economy is suffering. Thailand’s finance ministry on Jan. 16 announced that it expects growth of 3.1 percent this year, less than the 4 percent forecast it made on Dec. 26—an estimate that was already lower than the government’s original forecast of 5.1 percent. Thailand’s benchmark stock index has dropped 12 percent since the protests gained strength in November. The culprit is the tourism industry, which according to the World Travel & Tourism Council, a London-based industry group, accounted for 16.7 percent of the Thai economy in 2012. Industry officials estimate tourist arrivals in January fell by half, to 1 million.
Thailand’s finances remain sound despite the slide in growth: Foreign exchange reserves exceed $167 billion. Multinationals are still making long-term investments in Thailand. Sharp (6753:JP), the Japanese maker of televisions and solar-power devices, on Jan. 27 announced an agreement with a Thai partner to build a 52-megawatt solar power plant north of Bangkok. ACE (ACE), the New York-listed insurer, on Jan. 12 said it would buy a Thai insurer.
Companies take solace from the isolated nature of the Bangkok protests. Manufacturers such as Ford Motor (F) and Seagate Technology (STX) operate far from the capital. That may not help, however, if the unrest spreads and affects the country’s ports. It could happen: Yellow Shirts did take over the main international airport for two weeks in 2008. For now the two worlds of Thailand simply coexist.