By Oren Laurent
President, Banc De Binary
Recent weeks of protests in Thailand are the culmination of a seven-year power struggle centred on the self-exiled former Prime Minister Thaksin Shinawatra.
Thailand is no stranger to protests, but all the indicators suggest that the current demonstrations are different to those in the past, both politically and economically.
On Monday, thousands of protesters blockaded main roads across the capital, Bangkok, the latest in a series of demonstrations now in their third month. Organised by Suthep Thaugsuban, leader of the main political opposition, the urban elite and their southern allies claim that the current democracy is flawed and that Prime Minister Yingluck Shinawatra is merely acting as a proxy for her exiled brother Thaksin. They are boycotting the election which Shinawatra has called for February 2 and are demanding a two-year period without elections in which an unelected “People’s Council” would be responsible for reforming Thailand's political system.
Meanwhile, government supporters retort that the opposition are refusing to accept majority rule and are attempting to overturn the system because they would not win the election. Thaksin-allied parties have won the last four elections, thanks to the support of rural voters.
The latest demonstrations, along with talk of a possible military coup, have led to fears about the stability of south-east Asia’s second largest economy. Protests could be costing the Thai economy $30 mln a day, according to the University of the Thai Chamber of Commerce last week. The benchmark SET Index has dropped more than 12% since the end of October when the trouble began, and on January 6 the baht currency reached its lowest level since 2010. The tourism industry, responsible for close to 10% of the country’s economy has been badly affected and local consumer confidence reached a two-year low in December, according to a survey released last Thursday.
Thailand has experienced nine coups and more than 20 prime ministers since 1946. It has a history of mild political unrest over the last decades, but in the past its financial markets have quickly rebounded. In the last spate of violence in 2010, stocks rocketed 40% in the year and the economy enjoyed its best growth figures in 15 years. This time however, analysts are predicting deeper damage.
What is different? In part, the status of the economy is to blame. It was already experiencing slowing growth and outflows of global capital, making it particularly vulnerable to political instability and weak fiscal leadership. Furthermore, the country is now in the middle of its peak tourist season, unlike during the 2010 unrest, and its economy is now more reliant on tourism and infrastructure spending.
It remains to be seen whether the opposition will be able to sustain its efforts or whether turnouts will dwindle. There is currently no end to the protests in sight, and only time will tell whether the sides reach a compromise, go ahead with or postpone the election, or make way for full reform. As each week passes, economists are cutting their expectations for growth. On December 26, the Finance Minister lowered its 2014 growth forecast from 5.1 to 4%. I would not be surprised if this drops to 3.5 or even 3% if the unrest continues.
Amid all the uncertainty, it is abundantly clear that the longer the current crisis drags on and the longer Thailand is without clear leadership, the longer there will be no party with the power or incentive to implement growth-boosting economic policies, and the harder it will be for the slowing economy to pick-up pace once again.
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