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IT WAS always clear that real damage was being done. At least 28 people have died and hundreds have been injured. Now, almost five months on, the economic consequences of Thailand’s inert “revolution” are at last starting to show. This remarkable country’s rate of GDP growth has been cut in half, from around 5% to 2.5%.
Thailand’s politicians like to think of their country as the natural engine for growth in mainland South-East Asia. This year, it is acting as a brake. Uncertainty appears to have put hedgehogs into consumers’ pockets; spending has slowed sharply. In February, consumer confidence hit a 12-year low. Investment has fallen by 11% year-on-year in the final quarter of 2013. Tourist numbers are down. Chinese visitors appear to have taken travel warnings particularly seriously. Export growth has stalled and falling imports speak of feeble demand. A severe drought in the north and north-east is making things worse. The drought-affected areas account for perhaps one-fifth of GDP. But they are home to one half of the country’s 68m people.
The economy had been slowing even before the “shutdown” of the capital began. But the absence of a proper government has unnerved investors. The acting prime minister, Yingluck Shinawatra, is heading a caretaker administration. The opposition Democrat Party are distracted by the waiting game that their comrades have been playing out on the streets. A court might yet impeach Ms Yingluck over a notorious rice scheme. If that were to happen, some appointed lot would have to govern.
The kingdom’s state of constant political crisis has long since become exhausting to watch. Even as it winds down, it refuses to die out. On March 19th Bangkok lifted its official state of emergency. The anti-government protesters had already been boxed into a public park. Yet there is no solution in sight. There has been neither a coup, as the protesters’ leaders had hoped; nor a new mandate for governance, as the people who voted on February 2nd for the party of Yingluck Shinawatra had hoped (the opposition boycotted the election).
The well of Thailand’s economy has not run dry. It is nearly saturated with employment opportunities. Indeed the “number-one concern” of domestic and foreign firms alike is the shortage of skilled labour, according to Prasarn Trairatvorakul, the governor of the Bank of Thailand. No fun for employers, but at least the jobless are not a problem. Even as the rate of unemployment has edged up, it remains below 1%. And the shadow economy is vast. Only every second dollar of income shows up in Thailand’s national accounts data—a record low within Asia, according to the World Bank. There is more juice than official figures reveal.
Thailand’s frail democracy has always lacked an effective system of checks and balances. In the kingdom’s early days as an Asian tiger, that did not matter so much. Standards of living shot up and then rose steadily. After the 1997 crash Thailand’s economy developed a “Teflon” reputation; nothing nasty would stick to it. But since those days its development model seems to have hit a wall. Thailand is now an upper-middle-income country. And its squabbling politicians look to be too absorbed in their duelling to do anything about it. (A good start would be to invest in the frayed education system, or to increase spending on R&D from its current level, a mere 0.3% of GDP.)
The current political conflict is likely to ebb and flow until the next royal succession. In the absence of a return to political stability, there are at least two things that could be done to help relieve the (relative) stagnation. Either Thailand could kick-start exports, by letting the currency slide; or the state could spend a fortune on the sort of things that raise an economy’s speed limit.
The first remedy is already being applied, though the dose has been kept moderate. The baht’s real effective exchange rate has fallen by around 10% since April. It may have to fall further. But the current condition of relative stagnation cannot be considered reason enough for a shock devaluation (as the crises of 1984 and 1997 were).
That would leave deficit spending. And as it happens, Ms Yingluck’s government planned to spend 2.2 trillion baht ($70 billion) over seven years on upgrading the railway network, roads and waterways. There should have been fiscal headroom for this, but the government tried to circumvent the budget process by borrowing the cash through emergency legislation. Then on March 12th a high court ruled the bill’s financing to be unconstitutional. As a result Ms Yingluck will not be able to write a cheque quite so large as the GDP of Myanmar, Laos and Cambodia combined, and the scheme is put on hold indefinitely. The age of international connectedness, including the plan’s crown jewel of a $26 billion high-speed train, must wait. In the event, the stockmarkets did not even move—they perhaps knew all along that the future would not arrive so soon.
Thailand ranks 16th on The Economist’s new crony-capitalism index (up from 23rd in 2007). So there is a silver lining when the government is prevented from writing a debt-funded cheque for poorly planned spending. Certainly the opposition Democrat Party (and many of the country’s 3m taxpayers) can be pleased. But they should acknowledge that Thailand’s inability to spend public funds without making politically connected people rich is not entirely the fault of Ms Yingluck and her family. Politically connected firms have long been a national specialty. A study published in 2002 (tricky PDF), only a year after Ms Yingluck’s brother, Thaksin Shinawatra, became prime minister, suggested that at the time there was only one country where dominant political leaders were more skilful at using power to the advantage of their friends and family. That was Russia, which had spent a decade giving the rest of the world a remedial course on the concept of oligarchy.
(Picture credit: AFP)