Turmoil in Thailand Threatens Economic Recovery

Updated Dec. 11, 2013 7:45 p.m. ET

Anti-government protesters took blessings from Buddhist monks outside Government House in Bangkok Wednesday. Associated Press

BANGKOK—Political turmoil in Thailand threatens to set back the Southeast Asian nation’s expected economic recovery next year, as government infrastructure projects may be delayed and investors look elsewhere.
As thousands of antigovernment protesters continued to demonstrate Wednesday, economic forecasters pointed to uncertainty around the fate of embattled Prime Minister Yingluck Shinawatra, whose call for elections on Feb. 2 has been dismissed by protesters who are seeking her resignation.
Appropriations for billions of dollars of projects—such as a high-speed rail line—have been slowed amid political upheaval that has included sit-ins at government buildings and massive traffic tie-ups. Meanwhile, instability creates risk, which investors dislike and which could damp growth until at least the second quarter of next year, analysts said.
“A lot of [economic recovery] hinges on whether we will have the elections and who will win,” said Thanit Sorat, deputy chairman of the Federation of Thai Industries, a private group promoting Thai industries. “But a bigger question is then, ‘Will there be peace?’ Protesters who disapprove of the vote outcome may come out on the streets again in no time.”
The Thai economy has been weak, with the Bank of Thailand’s latest forecast predicting it will have grown 3% overall in 2013. Sluggish private consumption and investment have made government spending even more important to invigorating the economy, analysts said.
“We are not seeing much of government spending happening any time soon,” Mr. Thanit said.
Government spending has slowed since October, when Ms. Yingluck’s political problems escalated following a proposed amnesty bill. In October and November, government budget disbursements were below targeted goals, and 15.2% lower than the same period last year, according to FTI.
FTI, which expects the country’s overall investment to expand no more than 0.9% this year, said it doubts the 7.1% growth target in 2014 will be achieved.
High-profile infrastructure investment projects—touted as the turbo driver of the economy—will be put on the back burner, said Benjamin Shatil, regional Asia economist at J.P. Morgan. These include the government’s plan to borrow as much as 2.2 trillion baht ($68.75 billion) off budget to spend over the next seven years to improve the country’s aging rail system, highways and ports.
The borrowing bill for these projects passed the lower house and the Senate last month, but hit a snag when the government’s opposition asked the Constitutional Court to review its legality. If the bill survives the court’s scrutiny, it still will have to be proposed for the king’s approval by the new government, which wouldn’t likely be fully functional earlier than the second quarter of next year—assuming elections take place as scheduled.
Parliament also passed a 350-billion-baht water-management bill in March 2012 after the country suffered one of its worst floods in 2011.
Spending on these transportation and water projects would account for 0.5% of Thailand’s GDP in 2014, according to FTI’s estimates, and would boost investor confidence.
But the political impasse could delay the projects and put private investment plans in Thailand on hold and cause funds to flow out of the country. “Active capital outflow will only drive Thailand’s long-term financial costs up, while liquidity in the market remains relatively low,” said Sutapa Amornvivat, chief economist at Bangkok-based SCB Economic Intelligence Center.
On Wednesday, antigovernment protesters continued to demonstrate at the Government House, Ms. Yingluck’s main offices, demanding that she and her interim government step aside and be replaced by an appointed assembly.
Protest leader Suthep Thaugsuban said he has requested a meeting with military and police chiefs, as well as civic groups, to try to gain their support.
Thailand’s growth during Ms. Yingluck’s first-half term has been characterized by consumption stimulus measures. But a repeat of the 2011 fiscal handouts looks unlikely, given higher debt levels both for households and the government. Thai exports are forecast to expand no more than 1% this year.
“In some ways, the government doesn’t have as much fiscal space as it did two years ago to embark on another round of high-profile stimulus measures,” Mr. Shatil of J.P. Morgan said.
Write to Nopparat Chaichalearmmongkol at nopparat.chaichalearmmongkol@wsj.com

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