Thailand’s political unrest poses risk for fragile economic recovery

Thailand’s political unrest poses risk for fragile economic recovery
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On the face of things, the military junta in Thailand has restored some much-needed stability to the country after waves of violent protests in early 2014. However, there are many flashpoints that still pose significant political risk for the future.

Since 2001, Thailand has been rocked by political upheavals between the Shinawatra supporters on one side and the conservative opposition on the other. The latest escalation happened in early 2014 when the two sides clashed in several fatal demonstrations. The clashes resulted in a military coup led by the current Prime Minister, General Prayut Chan-ocha.

Since then, Prayut Chan-ocha has promised to hand over power to a civilian government – but only once he has successfully rewritten the country’s constitution. The country’s legislature recently approved a new draft charter in June, and is gearing up for a nation-wide referendum on the matter in early 2016.

In the case of a successful referendum, Prayut plans to call a general election sometime in late 2016. But if the referendum fails to approve the new constitution, Thailand may have a military government until at least 2017.

Although the process of switching back to a civilian government has already been delayed several times, the political and social atmosphere in Thailand has remained surprisingly calm.

Fears of eroding civil liberties

Nevertheless, all is not well, and the current government faces increasing disapproval. Not only has it received criticism from its own supporters for some of its attempted economic policies (including imposing an inheritance tax), it is also being accused of censorship and undermining democracy.

Indeed, the lack of political trouble can be attributed to the heavy hand of the military government, including an aggressive crackdown on corruption that has seen the death penalty for graft extended to foreigners. The anti-corruption push, justified by the junta as necessary to maintain security, is suspected by many as merely a way to silence opposition.

What is more, the government recently imposed a ban on gatherings of more than 5 people, or ‘unsanctioned protests’. According to the newly published law, unsanctioned protesters that disrupt transport hubs and other key infrastructure could spend up to 10 years in jail and face a 200,000 baht fine (over €5,000).

In particular, the new draft constitution has been widely criticized for anti-democratic provisions aiming to prevent pro-Shinawatra groups from assuming power. This includes changes to the voting system, and an amnesty clause covering last May’s coup.

Importantly, a similar amnesty bill proposed by Shinawatra’s Pheu Thai Party in 2013 was one of the main triggers for last year’s political crisis, and will remain a source of major discontent until a change in power.

Trouble on all fronts

In addition, one of the main political tensions at the moment is the situation of former Prime Minister Yingluck Shinawatra. Currently on trial for criminal negligence of her administration’s rice pledging scheme, if she is found guilty she could face up to 10 years in jail.

In that case, the military government will have a difficult choice: either pardon Ms. Shinawatra of her charges, or imprison Thailand’s first staunchly supported female prime minister. Either choice is likely to lead to renewed political demonstrations across the political spectrum.

Looming over this sensitive situation is a power struggle at what many deem to be the absolute apex of Thai society: the royal family. As the health of 87-year old King Bhumibhol visibly deteriorates, speculation on the royal successor grows more rampant.

Crown Prince Maha Vajiralongkorn is the most obvious successor, but U.S. Embassy cables released by Wikileaks in 2010 revealed that top officials in the government and the Royal Court have “grave misgivings” over his suitability to succeed King Bhumibol.

One of Vajiralongkorn’s three sisters, Princess Maha Chakri Sirindhorn, has been touted as a much more popular alternative, though the decision to crown her as the royal successor would require some controversial political maneuvers.

A weaker economy

Furthermore, when the military junta took power, one of the main promises was that it would restore the country’s economy. But the support for the government has taken a blow in the face of weakening economic forecasts. Most notably, the economy grew a mere 0.7% in 2014.

What is more, the ADB has recently lowered predictions for Thailand’s growth from 3.6% to 3.2%, pointing to contracted merchandise exports and a continued deterioration in the consumer confidence index. To make matters worse, the Bank also cut projections for inflation from 2% to a deflationary rate of -0.4%.

At the same time, Thailand is facing the worst drought in over a decade, and the Finance Minister Sommai Phasee says the drought could cut GDP by 0.5%. In an attempt to spur spending, the government has decided to freeze VAT at currently levels of 7% until September 30, 2016.

Indeed, one of the few pieces of good news is the return of tourism, which counts for about 10% of the Thai economy. While tourism slumped between 2013 and 2014 as a result of the political crisis, the numbers are rising and the Tourism board even predicts a record number of tourists for 2015.

One step at a time

In all, the current situation in Thailand is clearly better than during the political upheavals in early 2014, but there are several underlying tensions that can lead to a new outbreak of political and social instability.

As such, Thailand is in a sensitive situation, and there is not much room for error. A wrong step can cause a chain of events that will lead to renewed violence that can have a lasting impact on consumer activity, investor confidence, and political stability.

One major question will be if the Thai public can wait until the referendum in early 2016, assuming it takes place at all. Not only do the military’s heavy restrictions jeopardize public tolerance for the interim government, but it will make it all the more difficult to resolve deep societal divisions between the poorer rural regions and the middle class elite in Bangkok

Another focal point will be the trial of Ms. Yingluck Shinawatra. With her next hearing to take place on Tuesday, it is certain that supporters and opponents alike will be paying very close attention.

Meanwhile, tensions over the royal successor need to be put to a rest by an official announcement from the Royal Court. Otherwise, an untimely death of King Bhumibol may have unpredictable consequences at a time of heightened political uncertainty.

To compound these stresses is Thailand’s fragile economic recovery, which can act as a catalyst for tensions and can be the spark to ignite new political clashes. As such, investors will do well to monitor the situation in Thailand closely, as the risk of political instability remains high in the near future.

Categories: Asia Pacific, Politics

About Author

Karl Sorri

Karl has gained global experience working at the Transparency International Secretariat in Berlin, the Political/Economic Section of the U.S. Embassy in Helsinki, and as a freelance journalist. Karl holds an MA in Politics from the University of Glasgow and an MSc in International Relations from the London School of Economics.