Map Ta Phut, politics will hold back economic rebound

The economy should resume advancing next year after retreating 3 per cent this year.

The National Economic and Social Development Board (NESDB) forecasts gross domestic product - the output of goods and services - will expand by 3-4 per cent next year.

Siam Commercial Bank's Economic Intelligence Centre expects the economy to grow 3.7 per cent next year, driven mainly by exports, following 2-per-cent growth this quarter.

Public investment and the gradual recovery of the global economy have contributed to the improvement of the local economy since the second quarter, following a sharp contraction of 7.1 per cent in the first quarter.

Both policy-makers and businessmen are still concerned about political instability. Political turmoil over the past five years has eroded confidence, leading to low private investment and low household consumption.

"Politics is out of my economic equation," Ampon Kittiampon, secretary-general of the NESDB, said in response to a question on the possible impact of political uncertainty next year. He asked for politics to be stabilised to give economic recovery a chance.

Many observers believe the political situation will heat up next year by both street rallies and censure debates. Or the Democrat-led coalition government may suffer a political accident, leading to the disruption of its economic stimulus package.

Finance Minister Korn Chatikavanij has given assurances that the government will stay at least one more year in office.

There are some positive signs, as former prime minister Thaksin Shinawatra insists that his supporters - the red-shirt movement - will not resort to violence, meaning that it will act as political pressure group.

Some political analysts believe the opposition Pheu Thai Party will pay greater attention to parliamentary politics than street rallies. This is probably because the silent majority does not support the kind of violent that erupted in April, so Thaksin's supporters are forced to change their political strategy.

That should be good news for those who want to see a solid recovery. However, other serious issues have emerged. Pollution seriously impacting on people's health led the Supreme Administrative Court to maintain the suspension of 65 projects in the Map Ta Phut area.

The business community and those who want to see faster economic growth have loudly voiced their concerns about the fiasco's implications for the economy.

Some even argue that investors will lose confidence in Thailand due to the unpredictable regulations imposed by the government and other local institutions. They warn that investors will turn to other destinations for investment.

The Fiscal Policy Office estimates that the suspension could eat up 0.2-0.5 percentage point out of economic growth. The nominal loss is low, against the huge opportunity loss, which is mounting to nearly Bt1 trillion.

Meanwhile, risks remain that the unclear legal environment may divert local and foreign investment elsewhere.

Siam Commercial Bank points out in a research note that since the "Tom Yam Kung" crisis of 1997, only in Thailand and Malaysia within Southeast Asia does private investment remain lower than the pre-crisis level.

The Map Ta Phut crisis will suffocate private investment, and this means the Thai economy will remain dependent on export income, it said.

The 65 suspended projects include petrochemicals, steel, electricity-generating and waste-treatment plants, and ports. Their combined investment is about Bt230 billion.

Local communities and environmentalists hailed the court's ruling, as their fight for local people's rights had been a success.

While mainstream economists and investors have long welcomed a large inflow of foreign direct investment, the alternative school of thought has labelled Thailand as a "pollution haven", referring to both multinational and local firms investing in dirty industries here.

The ideal direction is the coexistence of more investment and a clean environment. However, as export-led economies in Asia have competed with each other on lower costs of production, such a desirable scenario may be hard to achieve.

The direction will also be influenced by how the international community can reach agreement on climate change, to cut greenhouse-gas emissions.

In the long run, the Thailand Development Research Institute predicts that an average growth rate of 2 per cent would be adequate to finance social welfare policies, including universal healthcare, free education, unemployment insurance and retirement savings.

Many economists claim the economy has the ultimate potential to grow 4 per cent annually.

"We can achieve a 2-per-cent average growth rate, unless climate change does bring disaster," says Ammar Siamwalla, a noted economist at the institute.

Probably, low economic growth but a safe world would be the best option for all.