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Thai Constitutional Referendum Adds to Clouded Economic Outlook

  • Ron Corben

FILE - Cars cross the Thai-Japanese friendship bridge in Bangkok, Thailand.

FILE - Cars cross the Thai-Japanese friendship bridge in Bangkok, Thailand.

Thailand’s economy, showing modest recovery in 2016, remains a hostage to political uncertainties as voters prepare to vote in a referendum on a new constitution on August 7.

Military influence and power would continue

The referendum will decide if voters support a new constitution promoting greater political influence by the military after fresh elections are held as expected next year.

The new constitution would include a 250 member military appointed senate along with a 500 member elected House of Representatives.

Uncertainty remains over the extent of public support for the new charter.

Civic groups remain critical of the military backed support for a new prime minister through a joint sitting of both houses rather than by the elected party or coalition with the most votes.

Krystal Tan, an economist with Singapore-based analysts, Capital Economics, says investors remain concerned given the uncertainties if the referendum fails to pass.

“Everyone is watching to see what happens to this referendum and the problem is it isn’t clear what happens next if the referendum does not pass. In which case you could see a further delay to elections that are tentatively scheduled for next year. And there will be this indefinite period when the military is in control,” Tan told VOA.

Since the military took power in May 2014, Thailand’s growth has struggled and is below normal at around 3.5 percent. Bank of Thailand officials are forecasting economic conditions to improve in the second half of 2016, aided by a forecast of public spending and tourism earnings.

But private investment, a major economic driver, continues to lag. In 2015, private investment grew by just 1.5 percent, with exports forecasting it to contract by two percent this year.

New investment applications through the state-owned Board of Investment (BOI) have fallen almost 90 percent from 2014 to last year and are valued at just $6.23 billion.

FILE - Workers decorate window on a high rise building of a renovation shopping mall in Bangkok, Thailand, 03 May 2016.

FILE - Workers decorate window on a high rise building of a renovation shopping mall in Bangkok, Thailand, 03 May 2016.

Foreign Investment

The referendum has created fresh uncertainties for key foreign investors such as Japan, says Chris Baker a Thai-based business commentator.

“[The referendum] certainly caused uncertainty and in all those respects for foreign investors it’s the most critical one because really particularly among Japanese and Koreans,” said Baker.

“But especially among the Japanese, they don’t see this military regime as being a permanent government, they want to see the government that’s going to be there for some time so they can engage in serious negotiation,” he said.

Economists from the United Oversea Bank in Thailand say macro-economic stability, including sound institutions and political stability were key to ensure ongoing investment into the country.

Amid the political uncertainty spending on consumer goods has also slowed with Thailand reporting lower demand for imports allowing the country to report a surplus on its international payments.

In rural areas, the Bank of Thailand says there are concerns over high levels of household debt among farmers affected by a prolonged two year drought and weak international commodity prices. Household debt in Thailand has reached over 80 per cent of national output.

Cloudy future

Public opinion polls are still reporting a high level of undecided voters over whether or not to support the new draft.

But Supavud Saicheua, managing director of Phatra Securities, says while the outcome of the referendum is unclear, the continued presence of the military in power is expected in the near term.

“The argument is also being made that, well, the referendum doesn’t matter – which I agree partly in the sense that whatever we say in the referendum the government will still want what it wants and it will do what it wants,” Supavud said.

“So if they say ‘no’ – the government will say they like this constitution anyway and we will write something similar to what is being presented right now,” he said.

The state-run economic think tank, the National Economic and Social Development Board (NESDB), in its latest five year economic plan, has set targets of 5.0 percent annual economic growth over 2017 to 2021.

Key development strategies are said to focus on human resources, narrowing income disparities, national resource preservation and research and development of the agricultural and industrial sectors.

But Capital Economics analysts’ are pessimistic over the Thai economic outlook. Among Southeast Asian economies, they see Thailand’s economy as likely to be “the worst performing over the medium term” given the unsettled political outlook.

The analysts say the military has failed to address deep political divisions, with fresh general elections possibly leading to “another round of political unrest.”