After years of political unrest and now a military coup, Thailand is facing an uncertain future. As the economy stagnates and nervous foreign investors weigh up their options, is the Land of Smiles heading for a fall?

Kirida Bhaopichitir

Thailand’s political turmoil has become a major crisis that threatens to deepen even further – and the country’s economy is being affected in three ways. “First of all, the tourism receipts,” says Kirida Bhaopichitr, senior economist at the World Bank’s Bangkok office, “because fewer tourists are coming to Thailand, although the numbers are stabilising a little now. We are seeing more tourists going outside of Bangkok to Phuket or Chiang Mai, but when I look at the overall numbers of tourist arrivals in Thailand, they are still declining. The direct impact will be on the businesses linked to the tourism sector.”

Then there’s the federal budget, says Bhaopichitr, herself a Thai national. “The next budget can’t be set yet because there is no government to approve the budget bill, so that will affect the investment spending of the government. The law says that you can do investments only in ongoing projects that have already been approved, so new projects can’t be implemented.” New government investment projects scheduled to take place in the next fiscal year (starting October 2014) will now be delayed, she says.

Government function has also been adversely affected. “For example, the appointment of a Board of Investment (BOI) was delayed, so that itself did not instil a lot of confidence with investors in Thailand. But now it has been set up and they will decide on the projects they will approve in terms of incentives being given. It’s taken them four months, but we will see what happens.”

As this issue was going to press, it was still unclear as to when and how a new government would be established following a military coup. After months of violent protests, the situation took a dramatic turn in early, May when Thailand’s first female prime minister, Yingluck Shinawatra, was forced from office by a controversial ruling in the Constitutional Court. 

She was briefly replaced by Niwatthamrong Boonsongphaisan, but then the nation’s army chief, General Prayuth Chan-ocha, seized power on 22 May. He deposed the elected government and established a ‘National Peace Keeping Committee’ comprising the police and armed forces. The
country’s future is as uncertain as it has ever been.

Nevertheless, Bhaopichitr says there is still a surprisingly high amount of interest in investment in Thailand. “Foreign direct investment numbers for January and February this year are higher than for January and February last year,” she notes. “Moreover, BOI applications for investments for the first three months of this year were also greater than the first three months of last year.”

Aon Thailand’s executive vice-president, Yoottana Kingkawkantong, points out that the economy has been losing its momentum for some time. “Since the caretaker government was unable to push through the stimulus investment policies, there has not been any significant government spending to spur the economy,” he explains. “To this point, the Thai economy is increasingly reliant on private sector investment to drive the economy.” However, the delay in appointing a BOI has harmed Thailand’s ability to attract new foreign direct investment, he says. “This is especially troubling given that the global economy seems to be on the upswing, which typically yields more direct investment into Thailand.”

Coface’s economist for the Asia-Pacific region, Rocky Tung, believes that Thailand’s prolonged political crisis is heavily affecting private consumption and international investment. “It is obvious that manufacturing activities are slowing,” he says. “Capacity utilisation rate of Thai manufacturers has slowed to below the 62% level.” Tung says that consumer confidence has plunged and reports suggest that foreign companies are deferring their investment plans in the country. “Household indebtedness (80% of GDP) is also weighing down on consumption and restraining the central bank’s ability to support growth.”


Alexis Marez, Asia-Pacific analyst at European risk prevention and management provider GEOS, points out that Thailand has faced “a latent political crisis cyclically and alternately punctuated by demonstrations of power between government and opposition” for more than a decade. “Beyond its security effect, which remains localised and still contained, this durable political instability also raises concerns as to the economic scale for a country that has stagnated for several years now but with a potential, both in terms of internal market and regional level, [that is] still attractive,” she says. “At the economic level, the growth rate in the first quarter of 2014 was revalued downward – from 5% to 2.7% – relative to last November’s forecast displayed by the Bank of Thailand, mainly owing to a decrease in foreign investments.”

Marez says that the stagnation of the political situation is causing many foreign companies operating in Thailand to reconsider their strategic positioning. In the months to come, many might decide to move some of their activities to more stable, neighbouring countries, especially in the automobile sector. “The bell sound is essentially the same in the Thai finance sector, where voices are heard to ask as soon as possible for the restoration of a functional government to stabilise markets and prevent a real economic crisis.”

As Bangkok-based DLA Piper consultant Jonathan Goacher sees it, Thailand is still one of the strongest and most resilient economies in South-East Asia – one that is largely considered an investment-friendly jurisdiction. However, he warns, the current political turmoil has affected its regional competitiveness and ability to function as an efficient and effective place to do business. While the country’s steadfast resilience to past unrest resulted in the coining of the term ‘Teflon Thailand’, Goacher sees signs of deeper damage this time around. This could pose long-term problems for a country already wrestling with slowing growth and outflows of global capital from its fragile financial markets. “Even prior to the current political unrest, there was a need for Thailand to take action to stay competitive in the Asian market, given the increasing emergence of other countries such as Myanmar, Indonesia and the Philippines as attractive alternative places to invest,” he says. “The current episode of unrest has served to place even greater pressure on Thailand to remain attractive to foreign investment.”

For Bhaopichitr, the most worrying aspect of the entire saga is the long-term effect on Thailand’s economic development. “In the past years, the political situation has been unstable, so governments are short lived and we find that most policies are short term, like consumption stimulus rather than long-term education policies or health policies to deal with an ageing
society,” she says. 

“On the infrastructure side, there’s the two trillion baht public transport and logistics infrastructure investment programme [which focuses on investments in dual-track rail, high-speed rail and a mass-transit system in Bangkok]. This is something long term that needs to addressed, but can’t be, owing to the long-term political instability. 

“The bill has been nullified by the Constitutional Court and it’s not going ahead. Things like that really affect the long-term development of Thailand.”