ASEAN KEY DESTINATIONS
In 'Teflon Thailand,' protests test a weak economy
By Martin Petty
As anti-government protests roil Bangkok, the president of Thailand's largest petrochemical company is already seeing scattered disruptions to business.
"We have taken into account the possibility of prolonged political problems and we think it could hurt our businesses next year," said Bowon Vongsinudom, president of PTT Global Chemical Pcl after days of protests including the occupation of the Finance Ministry since Monday.
While Thailand's economy, Southeast Asia's second largest, typically shows remarkable resilience to political turbulence, there are factors this time around that suggest the unrest could exacerbate already softening business conditions.
Consumer spending has slumped this year and exports, worth 60 percent of Thailand's $366 billion economy, are flagging amid weak global demand. The government had pinned its hopes on offsetting those losses with record 22.3 percent growth from January to October in tourism, a sector accounting for 9 percent of gross domestic product (GDP), and big infrastructure spending.
That could be wishful thinking.
Images of streets crammed with whistle-blowing demonstrators seeking to topple Prime Minister Yingluck Shinawatra jar with "Amazing Thailand" tourist advertisements. About 16 billion baht ($497.82 million) has been lost through holiday cancellations this month alone, just as peak season begins, says the Tourism Ministry.
The protests could also add to delays in the injection of 2 trillion baht into the economy through infrastructure projects that have been on ice for months, bogged down in legal limbo from an opposition party challenge.
"Real concerns come via further delays in infrastructure spending and impact on tourism, the two most likely drivers of Thai GDP next year," Credit Suisse economist Santitarn Sathirathai wrote in a research note.
"These two components are likely to be sensitive to political and government stability," he said, adding that a snap election could return a weaker coalition that would struggle even more to push through big spending plans.
Thailand's baht currency, now the fourth-weakest in Asia, is another factor. Even before the protests, it looked vulnerable to the U.S. Federal Reserve's expected winding down of its $85 billion a month monetary stimulus measures.
The monthly correlation between the baht and 2-year U.S. Treasury yields has been at record highs, which means the currency already looks ripe for a fall when the Fed eases its stimulus measures. So foreign investors who poured into Thailand over the past six months as they avoided more troubled markets such as Indonesia and India now have two reasons to leave: higher U.S. rates and domestic political concern.
Political turmoil isn't always a drag on Thailand's economy which has weathered eight years of on-off turmoil that has seen governments toppled, protesters shot, buildings and buses set ablaze, and airports and shopping malls seized by demonstrators.
Each time, Thailand's financial markets typically swoon and rebound.
The bloodiest political violence in a generation erupted in April and May 2010, but foreign inflows nearly doubled that year; stocks rocketed 40.6 percent and the economy bounded ahead by 7.8 percent, its best growth in 15 years. Private investment jumped 14 percent and exports rose nearly 30 percent.
Tourists returned to Thai beaches in near-record numbers, up 12 percent that year.
"The majority of foreign investments are not in Bangkok," says Teeranan Srihong, president of Kasikornbak Pcl, referring to the manufacturers at the heart of Thailand's economy whose factories stud surrounding provinces.
"Thailand will be an attractive destination for foreign investors over the long term."
There's a nickname for the phenomenon: "Teflon Thailand".
"Those who follow Thailand are aware how it has bounced back and right now, I don't see any major negative impact," said Rahul Bajoria, an economist at Barclays Capital in Singapore, referring to six days of anti-government demonstrations.
But Bajoria acknowledges there are some risks.
"If there's an escalation or a snap election called, then it would create uncertainty that would certainly make people edgy for a while," he said.
Thailand's latest economic data - a snapshot of the economy before the protests - have been largely worse than economists expected, with factory output declining for a seventh successive month in October, down 4.08 percent from a year earlier and a month-to-month decline of 0.85 percent.
Exports fell 0.7 percent in October from a year earlier and the central bank on Wednesday cut its 2013 GDP growth forecast to 3 percent, from a scaled down 3.7 percent seen last month.
Its surprise quarter-point interest rate cut to 2.25 percent stretched the baht's losses to 0.3 percent to a 10-week low of 32.10 to the dollar on Wednesday and economists expect a further weakening as foreign capital outflows speed up.
Foreign investors sold a net $1.5 billion in Thai shares this month. But these pressures were well in place before the protests took hold.
Viboon Komadit, chief marketing officer at Amata Corporation, which runs Thailand's biggest industrial zone, said investors were prepared to weather political storms.
"We've been through Thai political turmoil for years," Viboon told Reuters. "The international community will understand, political volatility is part of development under a democratic system." ($1 = 32.1400 Thai baht)--Reuters
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