Thai’s Don’t Need Stability Like This

The Australian

Rowan Callick, Asia-Pacific editor

Analysts are wrong, the economy can’t be fixed by generals

The business analysts are starting to queue up to prove how hairy-chested and “realist” they are by insisting that Thailand’s military coup is just the job, exactly what the economy needs.

A firm hand on the tiller. Ordinary people just want to get on and make money, live everyday lives. No debilitating demos or wearisome debate. Stability.
And the army does indeed start its open-ended period of rule with a couple of important bonuses.

Firstly, the country’s political structure had clearly collapsed, with the established power elite refusing to concede that legitimacy can be conferred by elections, and with the ailing monarch unable or unwilling to intervene in support of constitutional rule.

Secondly, the economy was going downhill fast, despite a previous self-congratulatory claim that it was Teflon-coated and immune from political troubles. In the first quarter it declined 2.1 per cent, and this quarter will also be downhill, taking Thailand into recession.

But analysts don’t make business decisions: companies and individuals with alternatives will now be taking them. Investment and tourism, which account for 9 per cent of gross domestic product, are consequently bound to fall.

The kind of stability generated by armed men in uniform on street corners, or on TV stations they now control delivering stern messages, is not the kind that is conducive to a successful, diverse, flexible modern economy.

Hong Kong-based security and risk adviser Steve Vickers does not expect military rule to end any time soon: “This is a big showdown. And the people who appear strong today, may not be tomorrow. We must predict a backlash,” however long that may take to build.

The “Yellow Shirts” who have largely applauded the military takeover believe, he says, that this is their last chance to “fix things” before irrevocable changes happen, as expected in the wake of the eventual passing of the king.

But whether and how the army can reconstruct the nation’s governance — in which devolution must be a priority — remains an open question.

In the meantime, equities slipped a negligible 1.2 per cent over the first few days following the coup, until starting to rise again on Tuesday. Most regional investors were already overweight to Thailand, making it fully priced, so the market is unlikely to prove a goldmine for contrarians hoping to pick up stock cheaply.

Investors, who generally in Thailand as elsewhere in Asia seek joint-venture partners, will be awaiting the medium-term outcome of the tussle for control of Thailand’s levers before jumping into relationships — or increasing their exposure to existing involvements — with people whose standing and influence with local regulators and other people in power may change dramatically.

And, culturally, Thailand will become more isolated for now. Pop star Taylor Swift, for instance, cancelled her June 9 concert in Bangkok.

Beneficiaries from a shift of plans by tourists and investors are likely to include neighbours such as Malaysia, Singapore and Vietnam. Cambodia and Laos appear as yet unready, in infrastructure and governance terms, to gain as much.

The train of events in Thailand is immensely frustrating for those who champion East Asia as the global economy’s new fulcrum.

Mark Carroll and Janna De Vos, members of the Australian-Thai Chamber of Commerce, wrote persuasively six months ago of Thailand taking its place as “the Germany of Asia — a rich, export-driven manufacturing powerhouse and regional logistics hub”.

It has Germany’s strong manufacturing base — principally the auto industry — an industrious workforce, and fortunate geography. The only key part of the jigsaw lacking was first-rate infrastructure, which the government was acting on.

But the deleterious trail of events this year have underlined the importance of a further quality possessed by Germany — a settled political structure.

The army has begun to placate the huge numbers of rice growers let down by the displaced government’s failed promise to pay way over the market rate for their product, with $1.3 billion on its way and $1.7bn more to come.

It faces a big challenge in preparing the budget for the fiscal year that starts on October 1.

The Moody’s summary is clear: that the coup is “credit-negative, underscores Thailand’s perilous politics and will not restore investor confidence or ease downward pressure on the economy”.

The World Bank’s overview of Thailand, which became an “upper-middle-income economy” three years ago, describes it as “one of the great development success stories”.

But Simon Pritchard and Udith Sikand, of Asian research firm Gavekal Dragonomics, lament that the country had “seemed to have given up serious development in favour of a struggle to subdivide existing wealth and power”, while “ascendant political tribes in most other Asian economies are focused on growing the pie”. They say “the lesson of Thailand is that government policy must remain focused on development or face a decline into recrimination and political chaos”.