Previous Quarterly Editions
Expropriation Risk: 39 41 42 40 Political Violence Risk: 40 42 44 42 Terrorism Risk: 58 61 63 58 Exchange Transfer and Trade Sanction Risk: 40 40 42 44 Sovereign Default Risk: 42 42 42 45
TREND ▼ OUTLOOK ▲
Prime Minister Prayut Chan-o-cha’s military-aligned government has continued to maintain pressure on its political opponents by dissolving the Future Forward Party (FFP), which had become the leading critic of both the military and Prayut’s new government. The Constitutional Court ruled in February 2020 that a loan of 6 million USD to the FFP from its leader, Thanathorn Juangroongruangkit, was in fact a donation and thus illegal. The court ruling led to the dissolution of the party and a 10-year ban from politics for its leaders, including Thanathorn, who had already been disqualified from being an MP after losing an earlier case against him. Many of those associated with the FFP moved quickly to establish the new Leap Forward Party, which 55 former FFP MPs have now joined, although it is unclear how much influence Thanathorn will have in the new party; he now faces a lengthy prison term. Since the National Assembly re-opened last year after years of direct military rule, the FFP had been leading the opposition against the government, even though the Pheu Thai Party (PTP) aligned with deposed Prime Ministers Thaksin and Yingluck Shinawatra remains the largest party in the House of Representatives and the largest opposition party. Now that the FFP has been dissolved, pressure on the PTP from the government has eased, although numerous legal cases against past PTP leaders are ongoing. Meanwhile, the coalition of parties supporting Prime Minister Prayut ensures him a solid majority in the House and enabled him to survive the government’s first no-confidence motion in February 2020, when it also passed a new budget of 106 billion USD after several procedural holdups. The budget is a central part of government efforts to stimulate an economy that has been hampered by a consistently underperforming export sector. Growth in the final quarter of 2019 was only 1.6%, the lowest for four years. Against this background, the impact of COVID-19 on the economy will be extreme. Thailand experienced the economic impacts of slowing Chinese tourism and manufacturing production in January 2020, well before its own widespread outbreak occurred in March 2020. As a result, these key sectors were already showing weakness in the first quarter before the direct effects of domestic slowdowns related to movement and labour restrictions kicked in. The central bank expects a contraction of close to 6% this year, with exports contracting by 9%, which would be more than twice the impact experienced in 2009.
TREND ▼ OUTLOOK ►
A new tax incentive package for investment in the Eastern Economic Corridor (EEC) was introduced in February 2020. This is the military government’s flagship infrastructure scheme that is meant to transform the eastern provinces of Chachoengsao, Chonburi and Rayong into technological and manufacturing hubs, but which has faced delays related to water shortages and disputes over land expropriation. The government is also looking at loosening restrictions on foreign ownership for companies investing in the EEC. The arbitration process under the Thailand-Australia Free Trade Agreement between Kingsgate Consolidated, an Australian mining company, and the Thai government remains in its preparatory phase, with Kingsgate claiming 750 million USD following the closure of its Chatree gold mine in 2016. The government says it acted on environmental and health grounds because of the danger that the mine would poison local water supplies, while Kingsgate contends that the mine was expropriated. Estimates in March 2020 suggest that the tourism sector could lose 12 billion USD as a result of the COVID-19 crisis.
The dissolution of the FFP by the Constitutional Court resulted in numerous but relatively small public protests by party supporters in February 2020. The limited nature of the protests suggests that neither the PTP nor the United Front for Democracy Against Dictatorship, which were once able to mobilise mass protests in support of Thaksin-aligned governments, can do this now. Although technically possible, public protests have been very limited since the return of civilian rule, while carefully organised pro-government rallies are common. Movement and public assembly restrictions put in place because of COVID-19 prevent all assembly for the foreseeable future.
Two rounds of talks with southern insurgents took place in January 2020 and March 2020 as a negotiating team from the National Security Council met with representatives of the National Revolutionary Front (BRN). However, in a change of tactics, the team did not meet with representatives of MARA Pattani, a group assembled by the government prior to the 2014 coup in an attempt to represent new militant groups in the region. Bangkok now appears to be concentrating on the BRN, which is the strongest insurgent group in the conflict and regards MARA Pattani as a government effort to divide a very disparate set of rebel forces. This produced a positive result in April 2020 when the BRN declared a unilateral ceasefire for the duration of the virus outbreak. Before then, violence had spiked in March 2020 with a bomb attack on an administration centre and a standoff with security forces at the Pattani Dam. However, in recent months the violence, which has killed over 7,000 people since 2004, has continued a downward trend with only 20 attacks recorded in February 2020.
TREND ▲ OUTLOOK ▲
The suspension of duty-free benefits for Thai exports worth 1.3 billion USD under the US Generalized System of Preferences (GSP) became effective in April 2020. Although Thailand avoided being added to the US Treasury’s list of currency manipulators in January 2020, Washington remains concerned about Thailand’s trade surplus with the US, which exceeded 20 billion USD in 2019, and this means that the risk of being listed remains. The Ministry of Finance has argued that there will be little impact on Thailand’s economy if this happens, but new US tariffs are possible. Otherwise, government pressure on the political opposition parties has yet to increase the risk of sanctions. In March 2020, the central bank lowered its benchmark interest rate to 0.75% in response to the weakening economic conditions, and further cuts are likely. The baht has depreciated substantially since its peak in December 2019 when it was the best performing currency in Southeast Asia, falling by 10% against the USD during the first quarter of 2020.
The government has announced a 12-billion USD economic stimulus package to partially mitigate the economic effects of the COVID-19 outbreak. Ministry budgets will also be cut by 10% to fund the government’s emergency response. At the start of 2020, public debt stood at 42% of GDP. If it becomes necessary, the government will have political support for emergency amendments to the Fiscal Responsibility Act passed in 2018 that currently limits the amount of off-budget borrowing available to the government to 60% of GDP.
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