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Intensifying violence seen hitting Thai economy hard

The escalation in violence stemming from a political stand-off in Thailand threatens to undermine investor confidence and see the nation’s economy slip behind neighbors that are helping Asia lead the global recovery.

“This latest round of violence is unprecedented in recent memory and it takes the current confrontation into an unpredictable and a potentially quite harrowing phase,” said Nicholas Farelly, researcher at the Canberra-based Australian National University’s College of Asia & the Pacific.

At least 35 people have been killed since the Thai military moved to seal off a business district as large as New York’s Central Park four days ago as they seek to end an occupation of the city center by political demonstrators. Deteriorating consumer demand may impair spending and has prompted the central bank to keep interest rates at a five-year low.

“What matters is the man in Toledo or Paris or Sydney or Tokyo watching his TV and seeing piles of tires burning in the middle of Rama IV road,” said Alastair Hendersen, a partner in Bangkok at the London-based law firm Herbert Smith LLP. “Is that going to affect investor confidence? Of course it is.”

Signs have already emerged of investor unease. Foreign funds were net sellers of 14.7 billion baht ($454 million) of Thai equities last week, the most since 2007. The cost of insuring Thai government debt from default jumped 20 basis points to 175 basis points, according to Royal Bank of Scotland Group Plc prices.

At the same time, the benchmark SET share index closed little changed last week at 768.79 and remained 15 percent higher than the low reached in November. The baht retreated for a third day against the dollar as of 10:45 a.m. in Tokyo, paring the advance for the year so far to 2.8 percent.

The limited impact so far is due to the conflict being contained in the nation’s capital, Bangkok. At the same time, the situation threatens to slip out of control unless all parties exercise restraint and resume dialogue, Singapore’s Ministry of Foreign Affairs said in a statement on its website May 15.

“If this happens the consequences for Thailand and for Asean will be extremely grave,” the Singapore ministry said. Thailand is the second-biggest economy in the 10-member Association of Southeast Asian Nations.

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