Previous Quarterly Editions
Expropriation Risk: 41 42 40 42 Political Violence Risk: 42 44 42 40 Terrorism Risk: 61 63 58 55 Exchange Transfer and Trade Sanction Risk: 40 42 44 42 Sovereign Default Risk: 42 42 45 46
TREND ▼ OUTLOOK ►
The strength of government lockdown provisions, and the resilience of its healthcare system, has enabled Thailand to cope with the COVID-19 outbreak. The country has been particularly effective at ending cases of local transmission. Despite the improving conditions, however, the government extended the emergency powers, which was afforded to it under the Emergency Decree on Public Administration, until at least the end of July 2020. These have given it a political advantage in addition to a platform from which to combat COVID-19, although the governing party was already strengthening its position before the virus hit. After the leading opposition Future Forward Party (FFP) was disbanded by the Constitutional Court in February 2020, a wave of former FFP MPs joined the ruling People’s State Power Party (PPRP) to give it a substantial 25-seat majority in the House of Representatives. The Move Forward Party (MFP), which formed after FFP was dissolved as a home for those wanted to maintain the FFP’s agenda, has so far had limited influence in parliament or on the political environment in general. However, former FFP leader Thanathorn Juangroongruangkit has announced the formation of the Progressive Movement, a political organisation designed to contest local elections expected at the end of 2020 and provide a local structure for the MFP. With the opposition largely sidelined, at least at present, Prime Minister Prayut Chan-o-cha’s largest political challenge has come from instability within the PPRP, the party that nominated him for the premiership. Among the party’s elites, tensions over the distribution of political appointments and control over COVID-19 stimulus spending have led to savage infighting among competing factions. In June 2020, 18 members of the PPRP executive committee resigned in a move that triggered party elections. Deputy Prime Minister, Prawit Wongsuwon, a central figure in the 2014 military coup, and like Prayut, a former general, has since been named leader of the party. The move puts the leadership of the post-coup military government in control of both the government and Thailand’s most powerful political party. With Prawit as PPRP leader, Prayut is now expected to carry out a cabinet reshuffle that will see the departure of several technocrats, including the finance minister. The business community will watch to see if their replacements are also technocrats or if the posts go to more political appointees, as Prayut tries to cope with increasing factionalism within the party. Thailand’s economy will suffer a contraction this year that could reach double figures, and, while estimates vary, they suggest that 7-14 million people will lose employment as a result of the COVID-19 pandemic. Banks will be hit particularly hard by the economic consequences of the pandemic, with non-performing loans already at a nine-year high, the central bank has ordered stress tests in the banking sector.
TREND ▲ OUTLOOK ►
The Ministry of Labour, and the Ministry of Tourism and Sports, have both invoked force majeure in order to close business operations and enable support packages for employees. However, with regards to business or real estate contracts directly affected by COVID-19, it is not yet clear how the courts in Thailand will treat the outbreak. The Eastern Economic Corridor Act came into effect in May 2020. This loosens restrictions on foreign ownership for companies investing in the EEC, which is a special economic development area. As it will also facilitate the expropriation of land held by local landowners, one consequence of the act may well be to fuel anti-development sentiment in the eastern provinces and produce an uptick in local activism against compulsory land purchases.
The ban on gatherings issued under the COVID-19 emergency powers (which were given to the government in March 2020), has prevented protests against the dissolution of the Future Forward Party; and this in turn has limited efforts to launch an effective follow-on party. As there have been enough former FFO MPs joining the ruling PPRP to give it a comfortable parliamentary majority, the leadership of the Pheu Thai Party (which was once the mainstay of the opposition), is even more wary of organizing protests against government policies. As a result, anti-government activism remains concentrated for now in a nascent university-based student movement.
After two rounds of talks with southern insurgents, which took place in January and March 2020, the COVID-19 outbreak has delayed a third meeting between a negotiating team from the National Security Council and representatives of the National Revolutionary Front (BRN). However, the talks are expected to resume once travel restrictions are eased. The BRN is the country’s largest ethnic Malay Muslim separatist group, and is campaigning to win autonomy for the three southernmost provinces in Buddhist-majority Thailand. The BRN has generally been honouring a ceasefire it announced in April 2020, although there have been a small number of attacks over the last three months. A greater risk is that on-going raids by security forces could lead to reprisal attacks by militants, which would interrupt the recent trend of a decline in the violence that has killed over 7,000 people in the country’s three southern provinces since 2004.
TREND ▼ OUTLOOK ▲
Thailand continues to live with the risk of being named a currency manipulator by the US Treasury Department. Prior to the COVID-19 outbreak, the size of Thailand’s trade and current account surplus, as well as the level of central bank intervention in currency markets, were in excess of US Treasury thresholds. However, the sharp deterioration of economic conditions since the outbreak will have sufficiently eroded the trade surplus to reduce the risk of US sanctions, at least in the short term. After sliding against the US dollar at the start of the outbreak, the baht had returned to late 2019 levels by the end of April 2020. The central bank cut interest rates for the fifth time since June 2019 in May 2020 when it lowered its benchmark rate to just 0.5%.
TREND ▲ OUTLOOK ▲
The government has put in place economic stimulus packages worth 60 billion USD, but half of that total will need to be borrowed. Prior to the COVID-19 pandemic, it expected that planned borrowing for infrastructure spending would push the debt-to-GDP ratio up to 51% for 2020, an increase of 9% over last year (2019) but still within the legal limit of 60% of GDP. However, the budget for the fiscal year beginning in October 2020 now has expenditure at 106 billion USD, and this will produce a deficit that exceeds the 20% borrowing cap under the Public Debt Management Act. Parliament is expected to approve the budget by September 2020, and spending totals in the budget may well have grown further by then.
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