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Political Crisis Harms Thailand's Economy

Constitutional Court bans Somchai from office, thrilling anti-government protesters who shut down airports in recent days, charging that the ruling coalition was corrupt.

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By Tim Johnston
Washington Post Foreign Service
Tuesday, December 2, 2008

BANGKOK, Dec. 1 -- Thailand's ongoing political crisis has significantly weakened an economy already battered by the effects of the global financial slowdown.

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Olarn Chaipravat, Thailand's deputy prime minister, said Monday that economic growth would be flat or negative in 2009; the ratings agencies Standard & Poor's and Fitch announced they were downgrading the country's outlook; and it appears likely that growth in the important tourism sector will end the year in negative territory.

Anti-government protesters have occupied the country's main international airport in Bangkok for almost a week, stranding approximately 100,000 travelers and further undermining investor confidence. The crisis hit just as Thailand was heading into the year-end holiday season.

"From the end of November to the end of March, there were supposed to be about 5 million tourists coming in, but we could lose between 60 and 70 percent of that if this goes on for much longer," said Apichart Sankary, president of the Association of Thai Travel Agents.

The Thai Tourism Authority estimates that each visitor stays for a little more than nine days and spends on average $116 a day. Collectively, tourists contribute about 10 percent of the Thai economy. Although the industry recorded net growth of more than 14 percent in the first half of the year, there was a sharp decline just as the demonstrations gathered pace in August, down 20 percent in September compared with last year.

It is not just tourism that has been hit hard. The electronics industry uses the airport for high-end exports; the car industry imports vital components through Suvarnabhumi airport; and the country's booming flower, fruit and produce industries are all feeling the effects. Hawaii is experiencing a shortage of leis, most of which are made from Thai orchids.

The airport protests are the culmination of demonstrations that have paralyzed Thai politics for the past six months, and there is little sign that the yellow-shirted demonstrators of the People's Alliance for Democracy are willing to negotiate either with the government or with the police who have been ordered to try and remove them.

Also roiling the country's political life is a case in which members of the ruling coalition, including Prime Minister Somchai Wongsawat, have been accused of vote-buying in last year's elections. The Constitutional Court is due to hold hearings in the case Tuesday. If the court returns guilty verdicts, the defendants will be banned from politics and their parties dissolved, but many analysts say that is unlikely to end the problem.

Either way, the economy is suffering.

"Next year, the economy may not grow or even be negative. At least 1.2 million people will lose their jobs," said Olarn, the deputy prime minister.

Olarn's prediction for GDP growth is more pessimistic than that of many analysts, but institutions are cutting their estimates as the crisis drags on. On Monday, the main ratings agencies downgraded the country's outlook from stable to negative.

"The extended period of political turmoil surrounding Thailand's leadership shows no sign of resolution, and may undermine Thai sovereign credit fundamentals, especially as the global economy enters recession," said Vincent Ho of Fitch Ratings.

Investment had already dropped this year, and the recent protests are expected to accelerate that trend.

"Investment has come down quite sharply in the first six months of this year, and that can be largely put down to political uncertainty because exports stayed relatively steady during that time," said Prakriti Sofat, an economist with HSBC in Singapore.

The only bright spot on the horizon was the release of Monday's inflation figures, which indicated that prices had risen just 2.2 percent in November.


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