Thailand’s economy has withstood coups and regime-changing protests for decades, luring manufacturers including Toyota Motor Corp. even when turmoil dented stocks and the baht. This time may be tougher.
Demonstrators in Bangkok seeking to oust Prime Minister Yingluck Shinawatra sparked the most violent anti-government clashes in more than three years, raising the risk of the third removal of an elected leader since August 2006. Foreign investors sold a net $1.5 billion of Thai shares last month, the most among 10 Asian markets tracked by Bloomberg.
The current turmoil coincides with the rise of frontier nations such as Myanmar and the resurgence of neighbors including the Philippines, both of which are enjoying a period of political stability and quickening growth. In contrast, rising Thai household debt and stalled infrastructure projects are highlighting economic risks in a nation that Indonesia overtook as a destination for foreign direct investment in 2010.
“Investors are getting increasingly nervous about political risk in Thailand,” said Frederic Neumann, co-head of Asian economics at HSBC Holdings Plc in Hong Kong. “While Thailand has shaken off political uncertainty in the past, challenges have mounted in recent years,” he said, adding that the latest round of tensions puts at risk long-term growth prospects, with the possibility of “a lost decade.”
The baht depreciated 2.9 percent in November, the biggest monthly decline since May. The benchmark SET Index fell 5 percent last month.
Thailand is no stranger to upheaval. Since August 2006, the country has had six prime ministers, a coup, seizures by protesters of international airports and the torching of one of Bangkok’s biggest shopping centers.
Rallies that began more than a month ago against an amnesty for most political offenses stretching back to the 2006 coup that ousted Thaksin Shinawatra, Yingluck’s brother, have escalated into a wider push to replace what protest leader Suthep Thaugsuban calls the “Thaksin system” with an appointed “parliament of the people.”
At least three people have been killed in clashes between pro- and anti-government supporters, the most number of casualties since the 2010 rallies that left more than 90 people dead. The unrest has “affected consumption, investment and tourism,” and has a direct impact on sentiment, Bank of Thailand Governor Prasarn Trairatvorakul said on Nov. 30.
The economy expanded 2.7 percent in the third quarter from a year earlier, the slowest pace since the first three months of 2012, official data showed last month. The central bank cut its 2013 growth forecast to about 3 percent from 3.7 percent on Nov. 27 as it unexpectedly lowered its benchmark interest rate by a quarter of a percentage point, citing greater risks to expansion.
The economy “is now experiencing something akin to a perfect storm,” said Nicholas Spiro, managing director at Spiro Sovereign Strategy in London. “The timing of the political unrest in Thailand is particularly inopportune and heaps yet more pressure” on the central bank, he said, adding that scope for a further escalation of the crisis is considerable.
Yingluck’s administration has tried to speed up budget disbursement and spur local demand as exports faltered. Household consumption slipped 1.2 percent last quarter from a year ago, data showed, while public investment slumped 16.2 percent. The state forecasting agency said last month that it expects no export growth this year.
“The protests will likely undermine investor confidence and detract from an already fragile growth outlook for 2014, a credit negative for the sovereign,” Moody’s Investors Service said in a note this week. “Prolonged or escalating protests will adversely affect foreign investment and tourism, and exacerbate delayed public infrastructure investment, which will weigh on Thailand’s future growth in 2014 and beyond.”
Thailand has seen nine coups and more than 20 prime ministers since 1946, when King Bhumibol Adulyadej took the throne as an 18-year-old. Anti-government protesters said they will suspend rallies today as the country marks his 86th birthday, before resuming their push to oust Yingluck.
While political risk is a factor for companies from Toyota to Chevron Corp. and Singapore Telecommunications Ltd., the World Bank still ranks Thailand ahead of the Philippines and Indonesia on its annual index measuring ease of doing business.
“Political volatility is clearly one of Thailand’s major disadvantages,” said Robert Prior-Wandesforde, a Singapore-based regional economist at Credit Suisse Group AG. “But it clearly has significant advantages as well, which are very unlikely to be removed or indeed substantially reduced in the longer term anyway, by what’s happening at the moment.”
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