Singapore: Whether Thailand’s government stands or falls, the country’s latest bout of political chaos has further damaged one of its most precious economic commodities—its image as a stable place to do business.
The power struggle between supporters of deposed prime minister Thaksin Shinawatra and his royalist-backed opponents will continue to polarize Thailand whatever the immediate outcome of the stand-off, analysts say.
While Thailand’s political problems are not new, analysts say the storming and shutting down of Bangkok’s international airport by anti-government protesters represents an escalation that is particularly damaging to Thailand’s image and will have long-term implications for investment and tourism.
With several countries telling their citizens to stay away, and flights in and out of Bangkok paralysed, a nation long seen as a safe and business-friendly “Land of Smiles” is increasingly being viewed as one of South-East Asia’s basket cases.
“Perception is hugely important,” said Robert Broadfoot, managing director of the Political and Economic Risk Consultancy (Perc) in Hong Kong. “Where companies put their money is based on perception. The changing perception of Thailand is going to make it a lot harder for the country to attract investment.”
The tourist industry, which accounts for 6-7% of Thailand’s gross domestic products, or GDP, will be the most immediate casualty, analysts say. December and January are Thailand’s tourism high season. “If you have protesters bursting into the airport, of course it’s going to be damaging for the economy. It’s hardly the best way to promote your tourism industry,” said Chris Bruton, Thailand director for corporate advisory company Dataconsult Ltd.
Tourism-related shares tumbled on Thailand’s stock exchange on Wednesday, and the benchmark index hit a five-year low. But analysts say the market downside will be limited by the fact that foreign portfolio investors have already largely pulled out of Thailand—due partly to political uncertainty but mainly because of a general flight from emerging-market risk caused by the global financial crisis.
Foreigners have about 90 billion baht ($2.55 billion or Rs12,724 crore) invested in Thai equities, down from 238 billion at end-2007.
Broadfoot said that of 16 countries tracked by Perc, Thailand had dropped several places over the past three years and was now 15th in terms of political stability, with only India below it. “The two countries that have seen the most severe worsening in terms of political risk are Thailand and Malaysia,” he said.
The World Bank’s Worldwide Governance Indicators, a comprehensive annual ranking of countries according to various measures of governance, rated Thailand’s political stability at only 16.8 out of 100 in 2007, diving from 44.7 in 2003. Thailand has also fallen sharply in the World Economic Forum’s ranking of countries according to global competitiveness.
Thailand’s five-year credit default swaps—contracts that protect against defaults and restructuring—moved out by 15 basis points (bps) to 285/315 bps after the airport was occupied, implying an uptick in risk.
Analysts say the outlook is also negative, because regardless of the fate of the current administration, the country’s fundamental political problems will persist.
“The government is clearly going to fall or be removed, it’s just a matter of timing,” Broadfoot said. “But that will not resolve the situation. There is a worsening urban-rural divide, key institutions are being weakened, and this is a structural problem that won’t be resolved by a change of government.”
Kevin Plumberg and Umesh Desai in Hong Kong and Khettiya Jittapong and Arada Therthammakhun in Bangkok contributed to this story.