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New Thai Government Banks on Political Stability for Economic Progress


Thailand's military-installed government has made political stability a priority for the next year rather than the pursuit of faster economic growth. Economists warn any slide into political conflict will damage investor and consumer confidence - and ultimately economic growth.

In a street market in Bangkok's financial and business district, merchants hope for better times after the uncertainties of Thai politics over the past year.

Business has slowed since the military ousted Prime Minister Thaksin Shinawatra from power last month. The new prime minister, General Surayud Chulanont, was appointed earlier this month and has promised to stress local economic growth

Don, a seller of music compact disks, says he is willing to give Mr. Surayud time to put his policies in place. Don says the prime minister is new to the post so he needs time to improve the economic conditions. And, he adds, the economy is not expected to deteriorate.

Although consumer spending and tourism have slumped since the coup, economists and business leaders say they expect little long-term damage.

Bob Broadfoot, from the Political and Economic Risk Consultancy in Hong Kong, says investors are still positive on the economic outlook.

"They've taken it in stride and given what happened to date I don't think there are going to be too many repercussions," he said. "But they are watching now."

The key was in the smooth transition of power after the bloodless coup on September 19.

Even before the coup, the economy had been healthy, despite months of political uncertainty and protests against Mr. Thaksin this year. Gross domestic product is expected to grow more than five percent this year.

Broadfoot says the economic resilience highlights the fact the coup was largely tied to politics, not the economy.

"Thailand's economic track record has been quite impressive. That is not the issue behind the fall of Thaksin. That's what makes this coup so unique - it was strictly politics," said Broadfoot. "It had very, very little to do with the state of the economy. Mr. Thaksin did a relatively good job."

But Mr. Thaksin, say political scientists, had divided the country because he used populist policies to play low-income groups against the urban middle-class and elites.

Economists and political analysts say Mr. Surayud's main task will be to heal political rifts.

Two key appointments may help do that. Business leaders have indicated they approve of the new finance minister, Pridiyathorn Divakul, who is the former central bank governor, and the new commerce secretary, Krirk-krai Jirapaet, a respected former senior servant in the ministry.

"The priority is to bring in unity of the people because there is a lot of conflict among various classes, among regions and leave the economy in the hands of Khun [Mr.] Pridiyathorn [the finance minister]," said Arporn Chewakrengkai, chief economist with the Thai government pension fund.

There were some immediate casualties from the coup. Consumer spending fell, with auto sales in particular dropping 10 percent in September. And hotels reported cancellations as news spread of tanks on the streets of the capital. But both sectors are expected to recover.

Thailand is still under martial law although the tanks returned to barracks within two weeks of the coup. But should the military tighten control over the public or delay elections more than a year, there could be damage to the economy.

After the last coup in February 1991, there was little immediate economic reaction.

But a year later, when it became clear the armed forces wanted to maintain control, there were protests that the military brutally crushed. The economy weakened sharply and business confidence took months to repair.

Shamika Sirimanne, a United Nations economist in Thailand, says political stability will be key to maintaining economic growth.

"The worse case scenario is built on the assumption that there's no stability politically and that would create a huge drop in investor and consumer confidence," said Sirimanne. "If that happens that's going to take a great dip in growth numbers."

The U.N. Economic and Social Commission for Asia- Pacific warned that any long-term political trouble could cause investors to pull money out of Thailand. In the worst-case scenario, the report said, growth could fall to three percent, inflation could jump to 10 percent and the Thai baht might slide 20 percent against the dollar.