Authorities in Thailand are moving forward with a plan to re-open tourist hotspot Phuket on July 1, a part of the country’s larger efforts to counter the effects of COVID-19 in the second half of 2021. Quarantine will be waived for tourists who can demonstrate proof of vaccination, and authorities are hoping the Phuket tourism “sandbox” will draw in 129,000 foreign and about 500,000 local visitors by the end of the year.
If successful, it is meant to show proof of concept which will guide re-openings throughout Thailand during the second half of the year. Tourism and Sports Minister Phiphat Ratchakitprakarn said provinces that have vaccinated 70 percent of their population will be considered for re-opening, with various health and travel protocols in place. He also said that the government would continue to monitor cases, reserving the right to cancel any reopenings if infections began to surge.
Separately, last month the Thai king approved a plan to borrow up to 500 billion baht (about $15.8 billion) to combat the effects of the pandemic. According to Reuters “300 billion will be for relief measures, 170 billion for reviving the economy and 30 billion for tackling the outbreak.” As authorities scale up the vaccination campaign, it is hoped that this stimulus coupled with the phased re-opening of tourist destinations will help get Thailand back on track after being pummeled by the pandemic. But will it be enough?
Let’s look at the vaccination campaign first. By the government’s own standard, getting a certain threshold of the population vaccinated is critical to the economic recovery plan, especially reopenings. Without sufficient vaccinations, areas that are reopened will likely see cases surge, leading to more closures. Opening and then closing again is probably worse than simply staying closed, especially when targeting the tourism industry as it creates uncertainty around travel plans.
But Thailand’s vaccination efforts to date have been somewhat lackluster. The country opted not to join the global COVAX procurement deal, instead pursuing a strategy that relied on a local company, Siam Bioscience, to manufacture the AstraZeneca vaccine. Siam Bioscience, which is owned by the king’s Crown Property Bureau, has struggled to meet its production targets leading to a sudden decision at the end of May to start importing vaccines from China’s Sinopharm. It was basically a tacit admission that the original vaccine strategy wasn’t working, which is a bit problematic when your reopening plan hinges on scaling up mass vaccinations quickly.
If all does go well, the re-openings and the economic activity they generate will be complemented by a 500 billion baht economic stimulus funded through government borrowing. This may sound like a lot, but it was scaled down from an original proposal of 700 billion and it represents only about 3 percent of Thailand’s GDP in 2020. Textbook Keynesian economics tells us that during times of economic contraction the government should run big deficits and borrow to stimulate demand.
In the long-run, the demand generated by such fiscal stimulus will outweigh the costs of the borrowing. But 3 percent of GDP is relatively modest all things considered (though, in fairness, it’s big by historical standards in Thailand which doesn’t like to run deficits at all). Will it be enough to stimulate sufficient demand to offset contractionary pressure from the pandemic, especially if the reopenings end up being cancelled as vaccinations lag and cases surge? That is the real question. And clearly, the Thai government is hoping that a quick return to normalcy will do most of the heavy lifting.
Basically, not much has changed since I wrote in The Diplomat last year that “the Thai government is still placing its hopes on trade and tourism to lead it out of this crisis, and to do that requires a stable baht that is not too strong. And that means adhering as much as possible to moderate fiscal policies, and keeping capital flows and debt in check.” As long as the government continues to prioritize a stable currency and a current account surplus, it is going to continue pushing to get tourism back on track and resist stimulating the economy with big deficit spending.
This will of course limit their options, and force them into a precarious waiting game to see if tourism sandboxes like Phuket can actually be pulled off. The real key, then, all along has been kicking the vaccination campaign into high gear and the complacency and own-goals which have caused a sluggish start in that area may come back to bite them in the end.