The long running standoff between protestors and the Thai
government has brought the country perilously close to civil
As Emerging Markets went to press, signs of a
tentative truce had emerged between red shirt protesters and
government forces, as both sides hinted at a compromise after
weeks of stalemate that has bloodied the streets of Bangkok and
brought the country to a standstill.
Yet even if some sort of compromise is ultimately achieved,
Thailands worst political violence in 18 years has
already exacted a heavy toll not just the 23 people
killed and 800 injured, but through deepening enmity between
Thailands rural poor and their wealthier urban
It is also likely to have done lasting damage to the
economy. Before the latest violent turn, the country
home to south-east Asias second largest economy
seemed on track to rebound from the economic slump it had
suffered as part of the global financial crisis. But on April
19, Fitch Ratings downgraded the countrys long-term local
currency credit rating from stable to negative due to the
unresolved political uncertainties.
Earlier, Thailands GDP grew by 3.6% in the fourth
quarter after the countrys first recession since the
Asian crisis in the 1990s. Thailands finance minister,
Korn Chatikavanij, says, however, GDP could still increase by
4.5% during 2010.
The Thai government is proceeding with its Bt1.4 trillion
($443.5 billion) economic stimulus package, a scheme adopted in
May 2009. The plan initially called for the government to
borrow Bt800 billion to fund new infrastructure spending and
other projects through 2012.
The initial Bt400 billion has already been requested and
approved to finance the scheme, but the finance ministry said
on April 19 that the government did not need to ask parliament
to approve the second Bt400 billion payment, and that the first
would prove sufficient due to improving economic
Despite the political instability, the Thai economy should
continue to recover from the global crisis. But the violence
threatens to undermine the countrys tourism industry,
which accounts for 6.5% of Thailands GDP and directly
employs two million people.
The red shirts main protest site is located in the
middle of Bangkoks commercial heart, near several
five-star hotels and the citys most luxurious shopping
malls. A Thai government spokesperson says the number of
international tourist arrivals has fallen by up to 70% since
the violence of April 10.
PACE OF CHANGE
In general, the Thai economy is still improving, but
progress isnt as swift as it would have been without the
unrest, says Thanavath Phonvichai, an economist with the
University of Thai Chamber of Commerce. He says that unless
there is a recurrence of the violence, improvements should
continue albeit at a slower pace than previously
Thanavath believes that tourism will recover if there are
signs of negotiation between the red shirts and the government,
and when the authorities lift the state of emergency that was
imposed on April 7. He says that even if Prime Minister Abhisit
Vejjajiva were forced to step down, a new government could
choose to continue the countrys current economic
David Cohen, director of Asian economic forecasting at
Action Economics in Singapore, is upbeat about the prospects
for Thailands economic recovery. The political
uncertainty is definitely a concern right now, he says.
But the Thai economy has been benefiting from the same
boost to exports and tourism that weve been seeing around
the region as the global recovery seems to be gaining
Cohen says the violence may have caused people to take
half a step back from Thailand, but it was unclear what
the long-term effect on tourism would be. But the
governments approach to the economic stimulus programme
is appropriate, he says. I think as is happening
elsewhere that policy-makers are going to be shifting
away from stimulus to the normalization of policy.
The Bank of Thailand, Cohen thinks, may even raise interest
rates in the coming weeks or months. Assuming that the
political situation doesnt get out of hand, we expect
theyre likely to hike interest rates in the second half
of year, he says.
Somchai Jitsuchon, research director for macroeconomic
development and income distribution at the Thailand Development
Research Institute, says that the political unrest
threatens tourism and investments since investors face
uncertainty about the state of affairs.
But exports, he says, have not been affected,
and the economic stimulus plan is continuing. If a change in
government did not lead to additional unrest, then there
would be no need for the government to stimulate the
Thailand is going through some difficult times,
says Nandor von der Luehe, chairman of Thailands Joint
Foreign Chambers of Commerce.
But he remains optimistic about foreign direct
investment. People still believe in Thailand and think
its a valuable place for investment, he says. But
he worries that decision-makers based
overseas may be put off by the images of violent clashes
coming from Thailand. Foreign direct investment is like a
beauty competition, he says. The most attractive
country gets the money. I dont think Thailand can claim
theyre the most attractive right now!
In terms of a political solution, its imperative to
reduce the current tensions, but a dissolution of the
parliament cannot be considered a way out, he says. If that
happens, rival political groups will simply launch new
MORE THAN SHIRT COLOURS
Thai society remains deeply polarized. The violence in April
came after red shirt protesters began sustained demonstrations
in Bangkok on March 12. The red shirt leaders are pressing
Prime Minister Abhisit to step down, dissolve parliament, and
call new elections.
The red shirts, many of whom are farmers and the urban poor
from the rural north of the country, are largely loyal to the
ousted prime minister Thaksin Shinawatra. He was overthrown in
a military coup in 2006 and lives abroad in self-imposed
The red shirts argue that Abhisits position is
illegitimate, and that he is part of a traditional
Bangkok-based elite that does not represent their interests.
They say Abhisit came to power in December 2008 only with the
help of the military, who assisted him in cobbling together a
This came after two subsequent Thaksin-friendly governments
were forced by the courts to step down in late 2008, the latter
after the anti-Thaksin Peoples Alliance for Democracy
a group known as the yellow shirts occupied and
forced the closure of Bangkoks international airport,
stranding thousands of foreign tourists for a week.
Aprils violent clash was not the red shirts
first such brush with the law. In April 2009, red shirt
demonstrators forced themselves into a hotel in Pattaya,
Thailand, where a meeting of Asean (Association of South-East
Asian Nations) leaders was being held. The red shirts then
rioted in Bangkok, and their protests were ultimately put down
by the government. But deep rifts remained.
Ultimately, much will depend on whether or not
Thailands leaders within and outside the current
government are able to reach some sort of
Thitinan Pongsudhirak, visiting scholar at Stanford
Universitys Centre on Democracy, Development and the Rule
of Law, says that Thailands prolonged political
confrontation and brinkmanship emanate from the anxieties and
machinations of a remarkable monarchical reign.
The situation is as much about a democracy in
transition as it is about a monarchy in transformation. The
six-decades-old constitutional monarchy is being challenged by
the very fruits of its success in providing stability and
unity, he says.
Somehow the ultimate way forward will have to be the
constitutionalization of the constitutional monarchy in line
with democratic aspirations, he says. The noises of
electoral democracy also will have to encourage and accommodate
a recalibrated constitutional monarchy for Thailand to resettle
in a new equilibrium.