As Thailand’s political woes worsen, senior economist at the World Bank’s Bangkok office Kirida Bhaopichitr talks exclusively to StrategicRISK
Bhaopichitr has told SR that the impact on Thailand’s economy of the country’s political instability has “three channels”.
“First of all, the tourism receipts because fewer tourists are coming into Thailand, although the numbers are stabilising a little bit now,” she said.
“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.”
Bhaopichitr, herself a Thai national, said that the second channel of impact was the federal budget.
“The next budget can’t be set yet because there is no government to approve the budget bill, so that will impact the investment spending of the government,” she said.
“The law says that you can only do investments 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 added.
The third and final channel was government function, Bhaopichitr said.
“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,” she said.
“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.”
The delayed appointment of a new BOI was a direct result of Thailand’s political stalemate, which took a dramatic turn earlier this month when Thailand’s first female prime minister, Yingluck Shinawatra, was forced from office by a controversial ruling in the Constitutional Court. Now officials are indicating that the election scheduled for July 20 might have to be postponed following several violent protests, and an incident when acting Prime Minister Niwatthamrong Boonsongpaisan was forced to leave a meeting with election officials when anti-government protesters broke into the grounds of an airforce base where the meeting was taking place.
Despite the country’s political woes, Bhaopichitr said that there was still a surprisingly high amount of interest in investment in Thailand.
“Foreign direct investment numbers for January and February this year are actually higher than for January and February last year,” she said.
“And BOI applications for investments for the first three months of this year were also greater than the first three months of last year.”
Bhaopichitr’s role with the East Asia and Pacific Poverty Reduction and Economic Management Unit of the World Bank requires her to monitor and assess the country’s economic developments, investment climate and reforms in the public sector.
She said that of all the problems created by Thailand’s political instability, it was the long-term impact on the country’s economic development that most worried her.
“Investor and consumer confidence drop quickly with political unrest, but they also rebound quickly when things improve,” she explained. “At the World Bank, as a development agency, we are more concerned with long-term development in Thailand.
“Over the past six years, the political situation has been quite 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.
“On the infrastructure side, there’s the two trillion baht public transport and logistics infrastructure investment program [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 due 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.”
‘People with good brains’
Reforms are also required to keep her nation competitive, Bhaopichitr said.
“One of the things that we see as countries develop is a move from agriculture to manufacturing to services,” she said.
“Thailand is still very heavily manufacturing based and very little attention is given to the services sector. The value-add of the services sector can be very high as it doesn’t need a lot of fiscal inputs except for people with good brains. That boils down to better education policies and skills development.
“Thailand could unleash the potential of its human capital but it’s not because that’s a long-term agenda and no-one’s focussing on that at the moment.”
Bhaopichitr has been the main author of the World Bank’s bi-annual Thailand Economic Monitor since 2003. The latest edition of the publication suggests that the short-term macroeconomic impacts of Thailand’s political protests since 2006 were generally short-lived. However, there will be longer-term consequences, it warns. “Thailand’s long running political drama makes it difficult for policy makers to focus on long-term development issues for the country as well as structural reforms that are important for Thailand’s future as the population ages, and countries like Indonesia, Myanmar and Vietnam become competitors,” the reports states.
The World Bank’s country director for south-east Asia Ulrich Zachau spoke at a dissemination seminar of the World Development Report 2014 at the Thailand Development Research Institute recently. The report makes particular mention of Thailand’s political instability, which is sees as “a major constraint on doing business, contributing to a decline in business sentiment and in private investment growth, despite improvement in several other aspects of the business environment”.
“Policy uncertainty can have dire consequences for private investments, particularly those in infrastructure and other decisions that involve large sunk costs,” the report states.