Previous Quarterly Editions
Expropriation Risk: 44 41 39 41 Political Violence Risk: 42 40 40 42 Terrorism Risk: 58 60 58 61 Exchange Transfer and Trade Sanction Risk: 44 42 40 40 Sovereign Default Risk: 42 42 42 42
TREND ▲ OUTLOOK ▲
Thailand’s political system has now completed the transition to nominal civilian rule. However, in June members of parliament elected Prayut Chan-o-cha, the former general who led the military junta to power in 2014, to continue in his role as prime minister and most of the key positions in his cabinet are filled by former members of the military government, known as the National Council for Peace and Order (NCPO). As a result, the military has achieved its goal of returning the country to an ostensibly civilian government while keeping a firm grip on power. Although its Palang Pracharath Party (PPRP) fell short of an overall majority following the long-promised general election in March, Prayat was able to put together a multi-party coalition that includes the royalist Democrat Party to give him a small majority in the 500-seat House of Representatives. The Pheu Thai Party (PTP) of deposed prime ministers Thaksin and Yingluck Shinawatra leads the Democratic Front coalition of opposition parties, which includes Thanathorn Juangroongruangkit’s Future Forward Party. Thanathorn’s popularity has grown dramatically after his party became the third largest in parliament following the election and he stood against Prayut for the prime ministership despite being barred from taking his seat after being charged with violating election laws. Despite his slim majority in the House, Prayut has unassailable support in the Senate and will continue to pursue his economic and political agenda even though he no longer enjoys the special powers under the interim constitution that had allowed him to circumvent existing legislation. The government is likely to continue its use of the Election Commission, the National Anti-Corruption Commission and the judiciary to pressure opposition parties and politicians, as with the charges against Thanathorn. The new government’s first challenge will be to manage the slowing economy. Although GDP grew by close to 1.0% quarter-on-quarter in the last quarter of 2018 and the first of 2019, the central bank’s growth forecast for 2019 has slipped from 3.8% to 3.3%, compared to 4.1% last year, and the manufacturing sector has contracted for the second straight quarter for the first time since the 2014 coup. The government has already introduced price controls and cash payouts to farmers as part of a short-term economic stimulus. Even as other countries in the region have benefited from US-China trade tensions, Thai exports have experienced four months of year-on-year declines and are down 2.9% for the first half of 2019. This weakness reverses a two-year rebound for export growth that saw the value of exports reach 66% of GDP. The government’s first draft of the 2020 budget foresees a deficit that is above the figure in the medium-term fiscal plan as a result of declining tax revenues.
TREND ▲ OUTLOOK ►
Local objections to the expropriation of land are delaying some of the infrastructure projects associated with the Eastern Economic Corridor (EEC), the government’s flagship development scheme that is meant to transform the eastern provinces of Chachoengsao, Chonburi and Rayong into technological and manufacturing hubs. The Department of Special Investigation announced in July that it will target online activities designed to circumvent Thailand’s Foreign Business Act (FBA), as part of its wider efforts to reduce the illegal use of Thai proxies for land ownership. An arbitration hearing under the Thailand-Australia Free Trade Agreement is scheduled for November to hear the claim by Kingsgate Consolidated, an Australian company, that the government’s closure of its Chatree gold mine in 2016 on environmental grounds was in fact expropriation. Kingsgate is claiming 750 million dollars in compensation.
With the advent of civilian rule, public assembly and political dissent are now possible again. However, tight control by the NCPO ended the earlier tradition of anti-government demonstrations and the diminished political power of the PTP makes it less able to mobilise street protests. However, if the Constitutional Court decides to ban or imprison Thanathorn or to disband his Future Forward Party, significant protests may follow. Local demonstrations against the impact of the EEC are likely to continue but should not spread beyond the eastern region.
Several small bomb and arson attacks in central Bangkok coincided with the meeting of ASEAN foreign ministers at the start of August. Among the targets were the police headquarters, government buildings and popular retail markets, but there were no deaths and few injuries. The authorities quickly indicated links to the ongoing insurgency in the country’s three Muslim-majority southernmost states. Although rare, it is not unknown for militant cells involved in the southern unrest to stage attacks in Bangkok. Since the re-establishment of civilian rule, there has been no effort by the government to restart the stalled peace process in the region, which has seen thousands of deaths since the insurgency started 15 years ago. The August bombings may instead provide the excuse it needs for a large-scale military move against militant groups there, possibly triggering a further response.
TREND ► OUTLOOK ▲
In an effort to counteract slowing growth and the appreciation of the baht, the central bank cut its benchmark rate by 25 basis points to 1.5% in August. The baht has gained more than 7% against the dollar since the start of the year, with gains accelerating in July. The bank has also brought in balance limits on foreign-held securities accounts and new reporting requirements for foreign-held debt securities in order to target potential speculation related to foreign capital inflows. The return to nominal civilian government has greatly reduced the risk of sanctions associated with military rule.
Last year’s Fiscal Responsibility Act will limit the amount of off-budget borrowing available to the government, but the projected declines in state revenue mean that more borrowing is likely to be necessary within the next year in order to maintain the large infrastructure projects that are meant to boost growth. This is despite the fact that the Thailand Future Fund, the new state infrastructure investment vehicle, has already generated over 1.5 billion dollars. Public debt currently stands at 42% of GDP, well within the legal cap of 60% established last year, but some 15% of this is now related to struggling state-owned enterprises.
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