Thailand’s economic outlook, long a victim of political turbulence, faces fresh uncertainties ahead of a national referendum on a military-backed draft constitution in August.
Economists say local and foreign investors remain on the sidelines waiting on the outcome amid fears of rising political tensions in the months ahead.
The draft constitution, a sharp departure from previous charters, curbs the powers of elected parties and proposes a military appointed 250-member senate that includes senior representatives of the military, police and security forces.
Debate over proposed constitution's effect
Thailand’s military leaders say the charter is aimed at ending political corruption and setting a path of reform with national elections due in 2017.
But the charter has been roundly criticized by Thailand’s major political groups, including the leading Pheu Thai and Democrat parties who are worried over an erosion of democracy in the country if the military backed constitution takes effect.
Stability vs. freedom of expression
Democrat Party member and former foreign minister Kasit Piromya calls the draft charter “ill-liberal” and a setback to the democratic process of Thailand.
“I have come to the conclusion that the military authorities and some of the conservative bureaucrats and intellectuals and academicians would like to see more stability in the political life of the Thai Kingdom than a more robust expression of differences inside the parliament or on the street or through the media,” Kasit told foreign journalists.
The government’s priority is political stability, but it has come at the cost of economic policy, said Pavida Pananond, from Thammasat University’s international business school.
“The policy direction on the economy would not be the priority of the government at the moment. So I think the economic impact before the referendum would be uncertain. Once we see the result of the referendum it is pretty certain now that political conditions afterward would be contentious,” Pavida said.
And that, Pavida added, would have negative implications for an economy already running on ‘auto-pilot’ as political volatility has long set back economic policy.
What kind of government is best for economy?
Singapore-based analysts Capital Economics, in a May 16 commentary on the Thai economy, said the draft constitution, with its steps to reduce the authority of elected politicians in any new government, has led to political temperatures rising, with “several arrests as the military led government moves to clamp down on criticism.”
Economists say Thailand’s long term public and private sector investment continues to lag due to the political uncertainties.
Capital Economics noted Thai investment growth at 3 percent a years between 2006 and 2015 is well below rates elsewhere, including Vietnam, which is at close to 8 percent a year.
Investors waiting to see which way Thailand will go.
Thai professor of Economics, Somphob Manarangsan, says local and foreign investors are now “waiting” on the outcome of the referendum before going ahead with investment plans.
“They are waiting to see what the circumstances in Thailand [will be] particularly the political landscape is going to move on. If [the government] can manage it smoothly it can restore more confidence among the investors – but if it is more chaotic that will be a different story,” Somphob said.
Investors don't want protests and violence
The Capital Economics report said any outbreak “of widespread protests and violent conflicts would deal a significant blow to the economy.”
It added that the tourism sector, currently a key driver of growth and accounting for almost 10 percent of national output, or GDP, is also vulnerable to political conflict. Business and consumer sentiment would also be hit.
Polls and surveys point to widespread uncertainty over whether people will back the draft constitution.
In the northern provinces, a stronghold of the Pheu Thai Party, political scientist Titipol Phakdeewanich said open debate on the charter has been curtailed, with voters expressing disappointment over the charter’s contents.
“Many people are talking about [the draft]. [But] there is actually no good options at all and no good alternative because the constitution itself has been strongly criticized by both [political] parties,” Titipol said. “Many people still think that at least if it does go through we might have elections [in 2017] but that is not an ideal choice for people”.
Senior Thai military officers, including Army chief Theerachai Nakwanich, have criticized the political parties’ opposition to the charter, saying it marks a “first step toward democracy,” as well as reforms in curbing political corruption.
Thai economic future is uncertain
Positive economic news came Monday with official data showing the Thai economy accelerating to 3.2 percent in the March quarter, marked by export growth, tourism and private consumption.
But Capital Economics, in its report, said despite the economic uptick, the referendum on August 7 remains a “potential flashpoint” in Thailand’s divisive political atmosphere.
“Even if unrest is avoided later this year, there is no clear end in sight to Thailand’s long-running political crisis,” it added. As a result, sluggish growth of around 2.5 percent is expected over the medium term.