A faulty democracy is at the heart of the country's problems.
Protesters gather next to a picture of Thailand's suspended prime minister Prayuth Chan-o-cha outside Government House. Photo: Reuters
Thailand has been concerning analysts and investors for years, ever since political tensions erupted and a five-year military takeover extended its welcome.
The return to a semblance of democracy has failed to imbue a sense of optimism, a situation worsened by the pandemic and current global risks, but which is largely down to the fact the military is still effectively in control, with reserved seats in the legislature as an additional safeguard against constitutional change.
Now political risk is spiking again as the next elections draw near. These must be held before May 2023, with speculation mounting that they might take place before the end of this year. And the outcome is highly uncertain.
A Constitutional Court decision was recently taken to remove from office Prayuth Chan-o-cha, the coup leader and incumbent prime minister, following a legal challenge to his term limit from opposition parties.
He stood down willingly until the verdict is given, with another military man, the former defence minister Prawit Wongsuwan, standing in.
The economy’s performance since 2014 has clearly lacked strength relative to Asean peers- Kenji Sekiguchi
Chan-o-cha seized power in 2014 and was reappointed as the nation’s leader after an unfair election held in 2019.
His opponents contend that he is constitutionally bound to stand down after already serving eight years in office.
His supporters argue otherwise, stating that his remit was set in 2019 when the new constitution took effect. This gives him the authority to continue until 2027 should his party and its allies win, and he is subsequently reaffirmed in parliament.
The Constitutional Court will issue its ruling on the matter on September 30 – a decision that could easily backfire.
Amid the uncertainty it has created, and the potential for more political acrimony and protests in a country that is no stranger to bitter feuds, Thailand’s risks invariably have continued to rise.
With its total risk score declining during the first half of this year, Thailand is now lying in 100th spot in the global risk rankings of 174 countries, having plunged 48 places over the past five years.
That makes it a tier-four country in Euromoney’s five-category scaling, on a par with other high risks such as North Macedonia, South Africa and Côte d’Ivoire.
Beyond the politics, Thailand’s diversified economy is holding up. It has only a small current-account deficit that is expected to revert back to a surplus before too long. A strengthening tourism sector coupled with high commodity prices provide ample foreign-exchange reserves to comfortably cover import payments.
But there are some nagging concerns.
Although GDP growth is forecast by the IMF to accelerate in real terms from 1.5% in 2021 to 2.8% this year, supported by stronger domestic demand, as in other countries prices have taken off. Annual inflation measured by the consumer price index hit almost 7.9% in August, with food, housing and transport costs soaring.
It is showing signs of peaking, and there is ample scope for tourism to catch up following the pandemic, but inflation could soften economic growth, as could another bout of political turmoil.
This is reflected in the survey scores for economic risk indicators, such as the economic/GNP outlook, which have been trimmed.
Global factors continue to dominate, such as China's self-inflicted economic wounds, and the rapid pace of monetary policy tightening by most developed market central banks- Miguel Chanco
The monetary policy/currency stability indicator is another that is worse off, highlighting increased emerging-markets risk aversion with domestic political risk affecting the baht.
Most of the political risk scores have deteriorated, too, more so corruption, institutional risk and, inevitably, government stability ahead of the next election.
This will be fiercely contested by Pheu Thai, the largest single party now in opposition, which stands a good chance of unseating the military-backed party and its allies.
Paetongtarn Shinawatra, the daughter of the exiled former prime minister Thaksin Shinawatra, is widely expected to be anointed as the party leader and prime ministerial candidate.
Should another Shinawatra contest the elections, one question is how the military would respond, given their beef with her family. She is the most popular in the latest polls, however, with Pita Limjaroenrat of the Move Forward Party in second place, ahead of Chan-o-cha, who is third.
Kenji Sekiguchi, chief economist at Rating and Investment Information, says the negative impact of the lack of political stability in Thailand has not been a devastating one, partly thanks to a well-established manufacturing sector, which has more “autonomous dynamism”, but it is still a body blow.
“It may have made businesses reluctant to invest, resulting in lower productivity growth, and even taking into account Thailand’s relatively high income levels, the economy’s performance since 2014 has clearly lacked strength relative to Asean peers,” he says.
Sekiguchi notes that the recent turmoil over the prime minister is not a new risk, but another reminder that politics will “continue to be marked by a sense of instability”.
The two key components for Thailand’s economic outlook – the tourism revival in the short term and industrial upgrading in the medium to long term – are relatively free of political concerns, he goes on to state, while also wondering what will happen if the upcoming elections take an unusual turn, exacerbating potential instability.
Miguel Chanco, senior Asia economist at Pantheon Economics, believes that political uncertainties certainly have risen in recent weeks, but not to the stage that they have become a big issue for the economy and markets.
“This is largely because global factors continue to dominate, such as China's self-inflicted economic wounds, and the rapid pace of monetary policy tightening by most developed market central banks,” he says.
More generally, Sekiguchi believes the institutional robustness of the nation will continue to be tested.
Chanco also mentions the high level of household debt in Thailand as another risk that is barely mentioned. He says it may necessitate a more aggressive tightening of monetary policy over the medium to long term, in an effort to guard against financial risks further down the line.