The political crisis has badly eroded economic fundamentals and confidence about doing business here
Bad news for Thailand’s Teflon economy may start coming thick and fast. The flexibility formed from years and years of political vicissitudes has been wearing thin, and “perception” is no longer the only factor. With the government dealt big blows over two pillar policies – the rice-pledging and free computer tablet schemes – harsh economic “realities” are increasingly setting in, and the road ahead is looking a lot bumpier than a few months ago.
The financial problems plaguing the rice scheme and the shroud of mystery enveloping the tablet plan have cast more major doubts over another mega project. The Pheu Thai government’s grand plan to borrow Bt2 trillion to upgrade transport infrastructure was already bogged down by legal and constitutional threats, but it is now further jeopardised by the fate of the two “lesser” policies.
The Bt2 trillion borrowing plan was made to look very vital to the Thai economy. With the global recovery unreliable and exports and tourism unable to play the role of a white horse, mega state spending was painted as a saviour. Those huge disbursements are unlikely to be seen in the near future – if at all – and the Thai economy all of a sudden has to look for an elusive new safety net.
We can blame acrimonious politics, or we can blame the risky recklessness of populism. The rice-pledging scheme is wreaking fiscal havoc while the tablet giveaway has highlighted the serious problems associated with making highly ambitious political promises.
Another contentious populist policy was the “first car” tax rebate that was said to badly burn other industries because consumers were “misled” about how to spend their money.
The caretaker Yingluck government may have got away with the Bt300 minimum wage policy. Then again, that may be because its “minor” problems have been overshadowed by those caused by other populist policies.
The question is simple: Who wants to do business with the Thai government now? With key economic policies so embroiled in political problems, who wants to take risks? Suppose the Bt2 trillion borrowing plan scrapes through politics – now an unlikely scenario – who would want to invest here?
Who wants to seek bank funds and which banks are confident of lending to the projects?
The mini-run on the Government Savings Bank is a bad economic sign. Many people withdrew their savings because they didn’t feel that the GSB lending to the controversial rice scheme was the right thing to do.
Others pulled their money out because they genuinely feared the bank would collapse. It doesn’t matter what the real reasons were, the GSB issue highlighted the growing influence of politics on public confidence in everything.
Ex-prime minister Anand Panyarachun has warned that the economy is on the brink of becoming the biggest political casualty. That was not an overstatement. Key economic factors are all getting negatively tied to the political conflict. Mistrust has spread to the economic front.
Corporations have been threatened with state action if they are found to be sponsoring anti-government protests. Those waiting for participation in state-initiated mega projects, meanwhile, must be having second thoughts.
Politics used to create “bad impressions”, which the economy generally survived thanks to the belief that a change of guard would not mean drastically altered core policies. That “comfort zone” is unfortunately disappearing. If not completely gone already, that is.