An increasingly ruthless fight for power and signs of a flight of capital out of Thailand threaten the country’s social stability and economic prospects, analysts warn

Thailand protests

As Thailand enters the second week of its 60-day state of emergency, anti-government street protests continue across the nation’s capital, Bangkok (see exclusive image gallery).

The caretaker Pheu Thai government declared the state of emergency on 21 January across Bangkok, Nonthaburi, and the Lardlumkaew district in Pathum Thani and Bang Pli district in Samut Prakarn (the location of Suvarnabhumi Airport).

Head of Asia analysis and forecasting at IHS Country Risk Omar Hamid said that police, rather than the military, were charged with leading enforcement of the decree, which grants police greater powers of search, seizure, arrest and detention.

“The government is likely to be motivated by its desire to reclaim the initiative and by the belief that a robust response targeting the opposition’s leadership will break their momentum, restoring its own hold on power,” Hamid said.

“Assuming the government decides to press ahead with elections, there is a low-to-moderate probability of the anti-government protests petering out if authorities clandestinely arrest protest leaders.”

Hamid said that a more likely scenario was that police failed to arrest protest leaders – or that arrests incited opposition supporters to take part in further street protests.

Demonstrations in Bangkok and the southern provinces have already disrupted advance polling that began on 26 January, and it is anticipated that further disruption will occur this Sunday, 2 February, which is the date set for the election.

Polling disruption

Hamid said it was possible that scores of protesters, some of whom might be armed with knives, sticks, rocks, handguns and grenades, would confront police units at key rally sites and polling stations.

“The police are likely to refrain from using force against protesters at polling stations,” he said. “However, should major fighting break out, police are likely to respond with tear gas, rubber bullets and water cannon.”

Should anti-government protests escalate, there is an increased risk of protesters targeting Red Shirt-affiliated assets in Bangkok, such as Amarin Plaza, Grand Hyatt Erwan, Kiatnakin Bank and Platinum Mall. This contrasts with the unrest in 2010 when Yellow Shirt-affiliated assets were most at risk.

Hamid said that all indicators pointed to disruption by the opposition continuing to prevent the election from taking place.

“The opposition may also seek to use legal measures to prevent the Pheu Thai from forming a government if it did win an election,” he said.

“Anti-government protesters have destroyed ballot papers, while the election commission has said it will likely to seek the constitutional court’s intervention to call for a fresh election if polling has been disrupted and cannot continue …. The election is unlikely to solve Thailand’s protracted political crisis.”

Economy threatened

Rocky Tung, who was appointed as Coface’s economist for the Asia-Pacific region in September last year, said that Thailand’s economic growth could be hurt if the unrest continued.

“In light of the tapering measures by the US Federal Reserve, the potential flight of capital from the country could hurt the Thai economy further,” Tung said. “The longer the political situation lingers, the longer it will take for the economy to recover from the loss of confidence.”

Nevertheless, Hong Kong-based Tung said that the impact of political unrest on domestic economic activities and investment sentiment “could be overstated”. He pointed out that large-scaled infrastructure projects in the country could maintain growth momentum despite adverse political conditions.

“However, with the house dissolved and the election to be potentially postponed, the bill on infrastructural spending will continue to be held up,” Tung added.

Travel troubles

Tourism revenues could be hit hard by the crisis, Tung said. “Tourism accounts for 9% of GDP and according to Tourist Authority of Thailand (TAT), the tourist industry lost nearly US$500m in November 2013 alone because of cancelled air tickets and hotel reservations,” he said.

Addressing a media conference at the ASEAN Tourism Forum held in Malaysia last week, TAT Governor Thawatchai Arunyik attempted to put a positive spin on the situation, saying that that while “major parts of Bangkok were facing transport and traffic disruptions” owing to the ongoing political protests, visitors could “still have a perfectly good time in the provinces”.

However, Tung points out that countries such as Hong Kong have issued travel alerts that will have a “drastic impact on tourism… particularly during the lunar new year period, which is traditionally a peak travelling season for some economies.”

There is also a risk of short-term capital outflows, Tung said. “Investors’ confidence can be hurt by the uncertain outlook, indicated by the close-to-$26bn decline in market capitalisation of Thailand’s SET index since Yingluck dissolved the parliament on 9 December,” he said. “Nevertheless, Thailand’s foreign reserves remain fairly healthy and its low foreign currency debt could help limit the country’s exposure to currency risk.”

Back in October 2013, Coface revised its country risk assessment for Thailand, where growth had decelerated sharply. It was expected to remain constrained in 2014 by the country’s high household debt, which is 80% of GDP.

At the time, Tung said that the effects of previous stimulus measures were wearing off, and that Thailand would continue to suffer from sluggish exports, particularly related to its dependence on China.