Political instability in Thailand affects ASEAN countries

Since the 2006 military coup that ousted then Prime Minister, Thaksin Shinawatra, Thailand has witnessed political instability, with the latest in a series of anti-government protests ended forcibly by the military in May 2010. Political instability adversely affects tourism, consumer spending and investor confidence not only in Thailand, but also in neighbouring ASEAN countries.

  • Ever since the 2006 coup, Thailand has been gripped by political turmoil. In April 2009, Red Shirt protesters – those who are angry that Thaksin’s government was forced out of office – caused the cancellation of the ASEAN summit and their latest anti-government protests went on from March to May 2010;
  • In 2009, real GDP contracted by 2.3% year-on-year largely as a result of falling demand for Thai exports amid the global economic downturn. In Q1 2010, real GDP growth was strong at 12.0% year-on-year, following 5.9% growth in Q4 2009. The rise stemmed from growth in exports, private consumption expenditure and investments;
Annual growth in real GDP in Thailand: Q1 2008 – Q1 2010
Annual % change

Source: Bank of Thailand.

  • Despite the strong annual real GDP growth in Q1 2010, the latest political unrest in Thailand is a concern not only for the Thai economy but for the ASEAN region as a whole. Thailand, accounting for 17.7% of the ASEAN’s GDP in 2009, is an important driver of economic growth for the region. Thailand’s economy is the ASEAN’s second largest after Indonesia.

Implications

Political instability has adverse effects on Thailand’s economy:

  • The number of tourist arrivals in Thailand went down from 1.7 million in December 2009 to 1.1 million in April 2010. With security concerns, hotel occupancy fell from 60.2% in January 2010 to 46.6% in April 2010. Tourism is important for the Thai economy as tourist receipts accounted for 6.1% of GDP in 2009;
Number of international tourist arrivals in Thailand: April 2009 – April 2010
’000 arrivals

Source: Bank of Thailand.

  • Business and investor confidence was also hit as the Business Sentiments Index (BSI) fell to 46.0 in April 2010 from 55.7 in the previous month. This was the largest month-on-month fall for the BSI since 1999. Domestic political uncertainty was the most cited business constraint from February-April 2010;
  • In April 2010, the Consumer Confidence Index (CCI) fell to 67.2 from 69.8 in March 2010, largely due to concerns over the intensifying political situation. Private consumption expenditure fell by 2.2% in Q1 2010 compared to Q4 2009, however, was up by 4.0% year-on-year.

Political instability in Thailand will also have regional implications:

  • Other ASEAN countries could witness higher tourist arrivals if the political unrest in Thailand continues and drives tourists to neighbouring destinations. In May 2010, tour agencies continued to report the cancellation of bookings to Thailand, stimulating booms in nearby countries;
  • Of the ASEAN’s total FDI inflows, Thailand received 16.5% in 2008, second to Singapore. Given the instability in Thailand, investors might relocate to neighbouring ASEAN countries, which will benefit them. However if the Thai political crisis prolongs, it could be seen as instability for the whole ASEAN, deterring FDI inflows into the region. Within the ASEAN, member countries fear that the situation in Thailand could spread economic and political instability throughout the region;
  • Intra-regional trade will be affected as Thailand accounted for 15.5% of intra-ASEAN trade in 2009. Trade between other ASEAN members and Thailand could reduce, amid a fragile global recovery, which in turn can affect the economic growth of other ASEAN countries in 2010;
  • The ASEAN is a large market of 580 million consumers and aims to have regional economic integration by 2015. Stability and development in Thailand are crucial for reaching this target.

Prospects

Uncertainty about the political situation in Thailand remains, leaving the Thai economy vulnerable to additional shocks:

  • In February 2010, the National Economic and Social Development Board revised its annual real GDP growth forecast for 2010 downwards from 7.0% to 3.5-4.5%. This was maintained in May 2010;
  • In May 2010, the Tourism Council of Thailand estimated international tourist arrivals in 2010 to be lower at 12.7 million compared to a target of 15.5 million and 14.1 million arrivals in 2009;
  • The government plans to make over Bt5 billion (US$146 million) available to tourism-industry businesses in low-interest loans. In a bid to revive tourist arrivals, free travel insurance for foreign tourists and a waiver of tourist visa fees have been extended until March 2011;
  • While other ASEAN nations expressed concern for the political crisis in Thailand, they are unlikely to help solve it due to the ASEAN’s long-standing principle of non-interference in internal affairs of member states.

Watch a video on the political unrest in Thailand and how it is effecting the Thai economy.

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