Bangkok attack likely to affect Thailand’s vital tourism industry

Bangkok attack likely to affect Thailand’s vital tourism industry

Last Monday’s bomb attack in Bangkok is driving tourists away and adding uncertainty to Thailand’s lackluster economy. Obsession with internal stability and a strong response from the junta-led government might lead to renewed political tensions.

The August 17th terror attack in Bangkok left both the Thai government and the public in shock. It took place at a popular tourist destination, the Erawan shrine, killing at least 20 and injuring 125, making it Thailand’s worst-ever attack.

At the time of writing, the culprits remain unknown, with possible causes ranging from Muslim separatists in the South, political opponents associated with the former Prime Minister Thaksin, or individual extremists. Uncertainty regarding the perpetrators reveals a series of flashpoints facing the country.

Meanwhile, tourists have cancelled their trips, and foreign countries have advised their citizens to stay away. A major setback in tourism is widely anticipated and will further undermine Thailand’s troubled economy, which grew just 2.8% in the second quarter of 2015.

Tourism takes hardest hit

Tourism accounts for roughly 10% of Thai GDP. It is the only solid growth driver for Thailand’s shaky economy. Foreign tourism, for instance, soared 37.6% year-on-year during the April-June period, while exports shrank 5.5% over the same period.

Instability is well-known to Thailand’s tourism industry. While tourism has bounced back relatively quickly after previous bouts of violence, this time the industry will take longer to recover. The level of violence was unprecedented. Previous political violence aimed mainly at protest participants, security forces, or government ministers outside of Bangkok.

Tourists have seldom been the direct targets of any social or political unrest in Thailand. However, the time and the location of the bomb attack is a clear indication that the attack targeted tourists specifically.

Economists warn declining tourism could see Southeast Asia’s second largest economy contract further in the second half of 2015, and markets will closely watch the impact of the bomb attack on tourism. On a positive note, tourism is expected to have a near-term economic impact if the attack remains a one-off event, and the bombing has no foreign link.

Strong state response risks exacerbating political instability

The bomb blast is a major blow to the junta’s fragile legitimacy, and will provoke a tough approach from authorities, something experts do not desire.

Nomura economists Euben Paracuelles and Lavanya Venkateswaran said “[t]he incident could elicit a strong response from the military government…raising the risk of the reimposition of martial law, or even an invocation of more sweeping powers if further incidents take place…These could prove disruptive to economic activity.”

Regardless of who the perpetrators are, the government will strengthen its efforts to ensure internal stability, either through further narrowing of political freedom or renewed efforts contain insurgencies, depending on the investigation outcome.

However, tightening internal security measures will likely “further exacerbate the government’s strained relationship with political groups and Thai citizens striving to influence the outcomes of ongoing debates about the political future of Thailand”, according to the former U.S. defense attaché in Bangkok, Thailand, Colonel Desmond Walton.

Thailand has long experienced power struggles, sometimes violent, between political factions. Over the last 15 months, the country went through a bloody mass demonstration, a military coup, and ten-month phase of martial law.

Next month, a military government-picked parliament will vote on a draft constitution that is widely criticised as undemocratic and a ploy to keep the junta in power, with no clear date set for a democratic election.

The bomb blast provides an ideal justification for the junta government to extend its authoritarian rule, on the basis that the country’s stability remains at risk. Another wave of mass demonstrations and political unrest is possible, should Thai authorities decide to impose tough measures.

Amid heightened uncertainty, the junta has reshuffled the cabinet and appointed a new finance minister and deputy prime minister to oversee the economy. The government will have to restore public and investor confidence quickly, and focus its attention on economic issues.

So far, the public has been contented with restricted freedom in exchange for internal stability and better growth. But this is unlikely to be sustained if the economy continues to deteriorate, or if another attack happens.

Categories: Asia Pacific, Security

About Author

Qingzhen Chen

Qingzhen is a GRI Senior Analyst and a research analyst for an international information company. Her research focuses on China and the Asia Pacific. Previously she was a market researcher for PwC. She has gained regional knowledge from internships with the UNDP, China Policy, and the Royal United Services Institute. She holds a BA in Politics and East European Studies and an MSc in Security Studies from University College London.