Thailand’s military might have ended a political stalemate by staging yet another coup, but guns and tanks will not rescue an economy on the verge of recession, analysts say.
On Thursday, Thai Army Chief Prayuth Chan-Ocha officially announced on national television the army’s 12th coup since 1932, stating that the military had seized power from May 22 “to restore peace back to the country in a short time and to reform the country’s politics, economy and society.”
The army leader imposed a daily nationwide curfew from 10 p.m. to 5 a.m., disrupting the nation’s valuable tourist trade. Political protests were banned, troops placed in media outlets and pro-government Red Shirt leaders arrested, while the caretaker government led by Niwattumrong Boonsongpaisan was removed.
The coup announcement came two days after tanks rolled through Bangkok streets and the army declared martial law, but denied it was seizing power. As noted by The Diplomat, the military had previously threatened to intervene in a protracted political crisis that pitted the largely rural-based supporters of ousted Prime Minister Thaksin Shinawatra against those loyal to the monarchy.
However, while the military detained rival political leaders to find a solution to seven months of political instability, there was little sign of compromise. Amid reported gunfire near a Red Shirt protest camp in the capital, the group posted on Twitter, “Now it is a coup – stand by for retaliation.”
Financial markets have already shown their displeasure at the nation’s political instability, despite reassuring statements from the stock exchange and airports authority. Gross domestic product (GDP) contracted 0.6 percent in the three months through March from a year earlier, its first annual contraction since 2011 amid plunging auto sales and production.
Thailand’s state planning agency responded by cutting its growth forecast for 2014 to a range of 1.5 percent to 2.5 percent, from 3 percent to 4 percent previously.
According to Bloomberg surveys, Thailand could even post its first technical recession since 2009 and will likely have the slowest growth in Southeast Asia, weighing on the outlook for the region’s second-largest economy.
“How long can you keep taking a punt that Thailand is going to get itself sorted out?” Steve Wilford, director of global risk analysis at Control Risks, asked the Wall Street Journal. “This situation is pushing the country toward recession.”
An estimated 30,000 auto workers could be laid off if the political crisis extends to the year-end, according to IHS Automotive, although foreign automakers such as Toyota and Ford said the coup had not affected production.
Growth Forecasts Slashed
ANZ economists reacted to the coup by revising downward their projections for Thailand’s GDP growth to just 1.3 percent this year, compared to their previous forecast of 2.2 percent. They attributed the downgrade to potentially delayed approval for the government budget as well as a slump in consumer confidence, as seen by five straight quarters of contracting private consumption – its weakest run since the 1997 Asian financial crisis.
“The imposition of martial law might be the necessary and sufficient step towards ending months of protracted political uncertainty, however it is unlikely to arrest a still-deteriorating economic outlook,” ANZ Research said in a May 20 update.
“The ceaseless downgrades to Thailand’s growth prospects in recent months have merely been a function of a lacking functional government and constrained and ineffective fiscal policy. Though the move by the Thai army is their most activist politically since the coup of 2006 that removed then-PM Thaksin, martial law and pro-active fiscal policy have typically not wed well. Hence these developments do not alter a very weak economic outlook borne of political and fiscal ineffectiveness.”
The economists said the absence of a functional government by year-end “would be a clear negative for credit and increase the risk of rating downgrades.” They said the central bank could react with cuts in interest rates, should the economy and political tensions deteriorate further, while the Thai baht would remain under pressure.
The effects of the nation’s political strife on the economy were shown in the latest IMD World Competitiveness Center survey, which showed Thailand dropping two places to 29th amid falling rankings in economic performance and government efficiency.
In contrast, rival ASEAN nations Malaysia and Indonesia climbed higher in the IMD rankings to 12th and 37th respectively, while major Thailand investor Japan continued its rise, gaining three spots to 21st place. Meanwhile, third-placed Singapore and fourth-ranked Hong Kong “continue to prosper thanks to exports, business efficiency and innovation,” the Switzerland-based business school said.
Red Shirt leaders have threatened to rise up should elections planned for July 20 not proceed, adding to the potential for further political violence. But with an estimated 19 successful or attempted coups in the past eight decades, Thailand’s democratic forces face a challenge in asserting the benefits of butter over guns.