Thai Generals Are Stuck With a Lackluster Economy
By Sunil Jagtiani
May 21, 2017
Source: Bloomberg
Once prized in Southeast Asia for its economic strength, the new reality for Thailand three years after the military seized power is growth that’s lagging behind peers.
The economy will expand 3.3 percent a year on average from 2017 to 2019, according to the World Bank, the weakest among eight developing Southeast Asian nations. The outlook is brighter elsewhere in the region as countries vie for investment: the Philippines is growing more than 6 percent a year and Indonesia at a pace of about 5 percent.
Thailand’s generals are trying to speed up infrastructure projects -- such as a $5.2 billion high-speed rail venture with China -- while bolstering innovation and advanced industries to spur expansion. Each of these objectives remains a work in progress. The Bank of Thailand has kept monetary policy steady to build confidence in the outlook, and economists predict it will hold its benchmark rate near a record-low 1.5 percent on Wednesday.
Thailand has pursued prudent macroeconomic and fiscal policies amid rising global uncertainties, Ulrich Zachau, the World Bank’s Bangkok-based Southeast Asia country director, said in an interview. Delivering large infrastructure projects quickly and improving the quality of education and skills are among the major challenges, he said.
The current stretch of military rule is the longest since the early 1970s in a country that has endured about a dozen coups since putting an end to absolute monarchy in 1932. The promulgation of a new constitution in April set the stage for a return to some form of democracy next year.
A bomb blast Monday at an army hospital in Bangkok on the third anniversary of the 2014 putsch injured at least two dozen people. It’s unclear who was behind the explosion, police said.
Here are six charts that help explain economic developments since the coup.
1. Growth Challenge
Expansion has picked up since the coup but trails Southeast Asian neighbors as well as central bank Governor Veerathai Santiprabhob’s estimate of Thai potential growth of 4 percent to 4.5 percent. A year-long mourning period for the late King Bhumibol Adulyadej has curbed consumption. Rising trade protectionism poses an ongoing risk to the export-reliant economy.
2. Private-Sector Investment
One obstacle for the economy is private-sector investment, which has been subdued for a prolonged period. Businesses have been reluctant to invest because of overcapacity and political uncertainty.
3. External Demand
After a prolonged slump, overseas shipments are recovering. The export industry makes up about 70 percent of GDP, and the Bank of Thailand expects a revival in the second half of the year to stimulate private-sector investment.
4. Currency
High foreign-exchange reserves and a trade surplus have burnished the appeal of baht-denominated financial assets, making the currency one of Asia’s best performers since the coup. The resilience is a risk to export competitiveness, prompting the central bank this year to curb the supply of short-term bonds.
5. Monetary Policy
The central bank has left interest rates unchanged despite a bout of deflation. A lack of inflationary pressures signals the benchmark will stay at 1.5 percent through the third quarter of next year, according to a Bloomberg survey.
6. Infrastructure
The big question for the military government’s infrastructure plan is how fast it can be implemented. The administration has unveiled 56 major infrastructure projects worth about 2.3 trillion baht ($67 billion) for 2016 and 2017, Bank of Ayudhya Pcl research shows.
