6 June 2024

Political stability has a key influence over a country’s economic performance both in the short and the long term.

In Thailand, anti-establishment protests that kicked off last year are rocking political stability, adding to the business community’s worries.

The economy shrank 6.1 per cent last year under the impact of COVID-19, with no more than 3 per cent growth expected this year.

But that fragile recovery is at further risk from a simmering political conflict that is heating up with clashes between police and protesters.

“We already have many economic issues and don’t want additional political issues,” Supant Mongkolsuthree, president of Federation of Thai Industries, said earlier this month.

Supant joined Kalin Sarasin, chairman of the Thai Chamber of Commerce, in urging the parties to solve their dispute peacefully via dialogue.

Foreign investors are also worried about political instability and have called on the government to solve the problem in order to boost investor confidence.

According to the Foreign Business Confidence Index (FBCI), foreign investors want the government to address five key issues – financial aid for SMEs, help for workers affected by COVID-19, easing investment regulations, reopening the country to investors and tourists, and ensuring political stability.

The Kasikorn Research Centre said it did not take the potential for political violence into account when projecting an economic growth rate of 2.6 per cent this year.

“We will update our projection in line with the current situation,” said Charl Kengchon, executive chairman of KResearch.

Potential for violence

Street protests last year were relatively peaceful apart from a few occasions when police used tear gas and water cannon against protesters. However, violence at protests began to escalate at the end of 2020 as police fired rubber bullets and protesters responded by throwing objects and vandalising police vehicles.

A March 8 court decision to deny bail for pro-democracy leaders jailed on lese majeste charges has raised the tension level, with protesters and their supporters calling the ruling a gross violation of human rights. The lese majeste law carries punishment of up to 15 years in prison.

Some protest supporters have floated the idea of resorting to violent means to achieve their political objectives, though the movement itself opposes aggression.

Another flashpoint is whether the charter-change process will be blocked by junta-appointed senators.

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“The new ministers should also be highly competent and capable of pulling Thailand out of the middle-income trap,” said Saowaruj Rattanakhamfu, senior research fellow at Thailand Development Research Institute (TDRI).

Long-term impact

Malaysia, Thailand’s neighbour to the South, has been praised for political stability with a government that has contributed to the country’s steady growth. In comparison, Thai governments generally have a short lifespan – averaging two years in office – which impacts the continuity of economic and related policies.

That impact would increase if the government rejects or is slow to respond to the new generation’s demands for a democratic Constitution and monarchy reform, observers warn.

“If political conflicts can’t be solved peacefully and lead to violence, then it would hurt investor confidence and the country’s image,” warned Pumsaran Tongliemnak, an education economist at the Equitable Education Fund.

“And if the political system remains closed to change, talented youth may look for opportunities in other countries,” he added.

Ageing population

A large workforce was one of the key drivers behind Thailand’s booming economy before it crashed in 1997.

Now, though, Thailand has become an ageing society with fewer workers supporting a growing elderly population. The proportion of the population older than 60 stood at 17.57 per cent at the end of last year and is expected to rise to 20 per cent this year. Meanwhile the working-age population is shrinking.

Against this backdrop, the older and younger generations are locking horns over politics, as senior citizens, especially the elite, oppose changes while the young demand the right to participate in political and economic decision-making.

“If we put a large number of our youth behind bars, we will freeze our country’s future prosperity,” said Move Forward Party MP Rangsiman Rome. Amnesty International Thailand says 382 protest leaders and demonstrators have been charged or jailed since 2020.

Rule-based society

Investors like rule-based practices as they ensure a level playing field and fair competition, while societies need institutions that enforce law and create trust.

However, Thailand institutions have always scored poorly in the annual world competitiveness ranking.

For instance, in 2019 Thailand ranked 40th overall among the 141 economies surveyed by the World Economic Forum. However, that ranking fell to 67 when taking into account only institutions.

The strength of social institutions is measured by several criteria, including judicial independence, press freedom, corruption, and government responsiveness to change.

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Resistant to change

The anti-establishment protesters are demanding rule of law and accountability of the monarchy under the Constitution in order to secure people’s rights as well as transparency in tax spending.

The government and the courts have responded by slapping protesters with the harshest of charges – a move that has destroyed trust among a large part of society. It has also reinforced a wide perception that Thailand embraces the rule of authority rather than the rule of law.

Both local and international rights organisations have called on the government to drop severe charges like lese majeste and sedition against the protesters.

“Restoring the rule of law will boost confidence in the economy,” said Anusorn Tamajai, former dean of Rangsit University’s Economics faculty.

Trade partners are watching

Major trade partners such as the United States have also expressed concerns about human-rights abuse in Thailand. The European Union joined the US in suspending trade negotiations with Thailand following the 2014 coup, and only resumed trade ties after the March 2019 general election.

Rising human-rights abuses or political violence could trigger a strong reaction from the US or the EU. The US has already responded to the Myanmar coup and ongoing bloodshed by slapping sanctions against members of the Tatmadaw (Myanmar military) and their children.

How to lower economic cost

Fearing violence will hurt the investment climate, business leaders Supant and Kalin believe dialogue between both sides is the only way out.

Parliament’s role is also crucial, especially since any move by junta-chosen senators to shoot down charter amendment efforts may spark clashes. And serious political unrest would undermine the country’s recovery.

“The government and other parties should listen to the voice of youth and realise that the young hold different views and values from the older generation,” Pumsaran said.

“The government should not respond with violence and should drop charges [against protesters] as well as end its threatening tactics. Instead, the government should build better understanding in society,” he added.

By Thai PBS World’s Business Desk